FINANCIAL REPORTING By LOFTUS, LEO - Test Bank

FINANCIAL REPORTING By LOFTUS, LEO – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Testbank

 

to accompany

 

Financial Reporting

 

by

Loftus et al

 

 

Prepared by Belinda Luke

 

 

 

 

 

© John Wiley & Sons Australia, Ltd 2016

 

 

 

 

 

Chapter 5:

Property, plant and equipment

 

 

 

 

Multiple Choice Questions

 

 

 

1) Property, plant and equipment are assets that:

 

1. a) are expected to be used up within the current financial period.
2. b) are held for resale within the current period.

*c) are physical in nature.

1. d) have a remaining productive life of less than one financial year.

 

Answer: c

Learning Objective 1: Discuss the nature of property, plant and equipment

 

 

2) Property, plant and equipment includes items that are:

 

1. a) intangible.
2. b) held for resale.
3. c) expected to be used up during the current period.

*d) held for rental to others.

 

Answer: d

Learning Objective 1: Discuss the nature of property, plant and equipment

 

 

3) The cost of property, plant and equipment is only recognised as an asset if it is probable that the future economic benefits will flow to the entity and:

 

*a) the cost can be reliably measured.

1. b) the asset has been fully paid for in cash.
2. c) the asset has been received by the purchaser.
3. d) it is a tangible asset.

 

Answer: a

Learning Objective 2: Outline the recognition criteria for initial recognition of property, plant and equipment

 

 

 

 

 

4) Jackson Limited acquired a bundle of assets for a cash consideration of $200 000. The fair values of the assets on date of acquisition was as follows: building $132 000, furniture $88 000. The appropriate journal entry to record this acquisition is:

 

1. a) DR Property, plant and equipment $200 000

CR Cash $200 000

 

1. b) DR Property, plant and equipment $220 000

CR Cash $220 000

 

*c) DR Building $120 000

DR Furniture $ 80 000

CR Cash $200 000

 

1. d) DR Building $132 000

DR Furniture $ 88 000

CR Cash $220 000

 

Answer: c

Learning Objective 3: Explain how to measure property, plant and equipment on initial recognition

 

 

5) Costs that may be included in the cost of acquisition of property, plant and equipment assets include:

	I	II	III	IV
Site preparation	Yes	Yes	Yes	No
Initial delivery and handling costs	Yes	No	Yes	No
Installation and assembly costs	Yes	Yes	No	No
Testing whether the asset is functioning	Yes	Yes	No	No

 

*a) I.

1. b) II.
2. c) III.
3. d) IV.

 

Answer: a

Learning Objective 3: Explain how to measure property, plant and equipment on initial recognition

 

 

 

6) After an item of property, plant and equipment has been initially recognised at cost it may be measured using the following measurement method:

 

1. a) liquidation value.
2. b) accrual.

*c) revaluation.

1. d) realisable value.

 

Answer: c

Learning Objective 4: Explain the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition

 

 

7) Under the cost model, after initial recognition of a property, plant and equipment asset the item must be carried at its:

 

1. a) residual value.

*b) cost less accumulated depreciation and less accumulated impairment losses.

1. c) initial cost.
2. d) net present value.

 

Answer: b

Learning Objective 5: Explain the cost model of measurement and understand the nature and calculation of depreciation

 

 

8) Wilson Limited applied the straight-line method of depreciation to its non-current assets. The cost of the buildings was $640 000, the depreciable amount is $560 000, the residual value is $80 000 and the useful life is 8 years. The annual depreciation charge is:

 

1. a) $80 000.
2. b) $75 000.

*c) $70 000.

1. d) $60 000.

 

Answer: c

Learning Objective 5: Explain the cost model of measurement and understand the nature and calculation of depreciation

 

 

 

 

9) Replicator Limited acquired an item of plant with an expected useful life of 5 years. Expected total production output over this period was: Year 1, 35 000 units; Year 2, 35 000 units; Year 3, 18 000 units; Year 4, 12 000 units. The asset cost $100 000 and associated installation costs amounted to $20 000 and residual value is $5000. The amount of depreciation charged in the first year is:

 

*a) $40 250.

1. b) $42 000.
2. c) $35 000.
3. d) $33 250.

 

Answer: a

Learning Objective 5: Explain the cost model of measurement and understand the nature and calculation of depreciation

 

 

10) When a company recognises a depreciation credit resulting from a review of the estimated residual value of a depreciable asset, the depreciation debit should be recognised in accumulated depreciation and the depreciation credit should be recognised:

 

1. a) in the opening balance of retained earnings.

*b) in the depreciation expense.

1. c) directly in the depreciable asset account.
2. d) as a gain in the current period.

 

Answer: b

Learning Objective 5: Explain the cost model of measurement and understand the nature and calculation of depreciation

 

 

11) A change in accounting policy from the revaluation model to the cost model requires a retrospective adjustment to the:

 

1. a) revenue in the profit or loss statement.
2. b) expenses in the profit or loss statement.

*c) opening balance of retained earnings.

1. d) other comprehensive income.

 

Answer: c

Learning Objective 4: Explain the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition

 

 

 

 

12) A non-current property, plant and equipment asset is depreciated using the straight-line method. The asset was revalued upwards after four years of use. There is no change in the remaining useful life of six years or to the residual value. Which of the following relationships reflects the effect of the revaluation on the prospective depreciation of the asset:

 

*a) Depreciation rate = Same; Annual depreciation expense = Higher.

1. b) Depreciation rate = Same; Annual depreciation expense = Same.
2. c) Depreciation rate = Higher; Annual depreciation expense = Higher.
3. d) Depreciation rate = Higher; Annual depreciation expense = Same.

 

Answer: a

Learning Objective 6: Explain the revaluation model of measurement

 

 

13) Revaluations under AASB 116 Property, Plant and Equipment apply to:

 

1. a) all assets on an individual basis.
2. b) individual current assets only.
3. c) individual non-current assets only.

*d) assets on a class-by-class basis.

 

Answer: d

Learning Objective 6: Explain the revaluation model of measurement

 

 

 

 

14) Use the following information to answer this question.

 

An extract of a company’s draft statement of financial position at 30 June 2012 discloses the following:

 

Plant (at cost)                                      $500 000

Less Accumulated depreciation          300 000                       $200 000

 

On 30 June 2013, the company assessed the fair value of the plant to be $350 000. At 30 June 2014, the carrying amount of the plant was $250 000.

 

The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straight-line method.

 

The journal entries necessary to record the revaluation of plant (ignoring any tax effect) at 30 June 2013 in accordance with IAS 16 Property, Plant and Equipment is:

 

*a)

Accumulated depreciation — Plant	Dr	300 000
Plant	Cr		300 000
Plant	Dr	150 000
Gain on revaluation — OCI	Cr		150 000

1. b)

Plant	Dr	150 000
Gain on revaluation — OCI	Cr		150 000

1. c)

Gain on revaluation — OCI	Dr	150 000
Asset revaluation surplus	Cr		150 000

1. d)

Plant	Dr	150 000
Gain on revaluation — OCI	Dr	150 000
Accumulated depreciation — Plant	Cr		300 000

 

Answer: a

Learning Objective 6: Explain the revaluation model of measurement

 

 

 

 

15) Use the following information to answer this question.

 

An extract of a company’s draft statement of financial position at 30 June 2012 discloses the following:

 

Plant (at cost)                                      $500 000

Less accumulated depreciation           300 000                       $200 000

 

On 30 June 2013 the company assessed the fair value of the plant to be $350 000. At 30 June 2014, the carrying amount of the plant was $250 000.

 

The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straight-line method.

 

The journal entries to adjust for the tax effect of the revaluation at 30 June 2013 is:

 

1. a)

Income tax expense — OCI	Dr	45 000
Deferred tax liability	Cr		45 000

1. b)

Asset revaluation surplus	Dr	45 000
Income tax expense — OCI	Cr		45 000

1. c)

Income tax expense — OCI	Dr	45 000
Asset revaluation surplus	Cr		45 000

*d)

Income tax expense — OCI	Dr	45 000
Deferred tax liability	Cr		45 000
Gain on revaluation — OCI	Dr	150 000
Income tax expense — OCI	Cr		45 000
Asset revaluation surplus	Cr		105 000

 

Answer: d

Learning Objective 6: Explain the revaluation model of measurement

 

 

16) Troubadour Limited had an existing revaluation surplus in respect to an item of plant that had been derecognised. An appropriate journal entry to transfer the surplus to retained earnings would include:

 

1. a) DR Gain on revaluation — OCI.
2. b) CR Asset revaluation surplus.
3. c) DR Retained earnings.

*d) CR Retained earnings.

 

Answer: d

Learning Objective 6: Explain the revaluation model of measurement

 

 

 

17) When an asset is sold the resulting gain or loss is:

 

1. a) reported in other comprehensive income, normally with separate disclosure of income and the carrying amount of the asset.
2. b) reported in other comprehensive income, normally on a net basis.
3. c) reported in current period profit or loss, normally with separate disclosure of income and the carrying amount of the asset.

*d) reported in current period profit or loss, normally on a net basis.

 

Answer: d

Learning Objective 7: Account for derecognition

 

 

18) Which of the following statements is NOT correct in relation to disclosure of property, plant and equipment balances:

 

1. a) Paragraph 79 of IAS 16 contains disclosure that are encouraged, but not required in relation to property, plant and equipment.
2. b) An entity must disclose the useful life estimates for each class of assets.
3. c) A summary of movements in the revaluation surplus is required to be disclosed.

*d) Information on assets carried at revalued amounts must be disclosed on an individual asset basis.

 

Answer: d

Learning Objective 8: Outline the disclosure requirements of AASB 116/IAS 16

 

 

19) AASB 116 requires disclosure, for each class of property, plant and equipment:

 

1. a) the measurement bases used for determining the gross carrying amount.
2. b) the deprecation methods used.
3. c) the useful lives or the depreciation rates used.

*d) all of the options are correct.

 

Answer: d

Learning Objective 8: Outline the disclosure requirements of AASB 116/IAB 16

 

 

20) The cost of an item of property, plant and equipment is only recognised if the cost of the item can be reliably measured and:

 

1. a) it is not directly attributable to the asset.
2. b) it has been paid for in cash.
3. c) the item has been received by the acquirer.

*d) it is probable that future economic benefits associated with the item will flow to the entity.

 

Answer: d

Learning Objective 2: Outline the recognition criteria for initial recognition of property, plant and equipment

 

21) An entity acquired an item of plant in exchange for an item of equipment. The equipment has a carrying value of $5000 and a fair value of $6000. The journal entry to record the acquisition of the plant will show:

 

1000. a) a loss on acquisition of $1000.
1001. b) proceeds on sale of equipment of $1000.

*c) a gain on sale of $1000.

1000. d) proceeds on sale of plant of $1000.

 

Answer: c

Learning Objective 3: Explain how to measure property, plant and equipment on initial recognition

 

 

22) For the purposes of recognising a non-current property, plant and equipment asset the acquisition date is determined as the date:

 

1. a) the contract to exchange assets is signed.
2. b) on which the offer to acquire the asset becomes unconditional.
3. c) the consideration is paid.

*d) on which the acquirer obtains control of the asset.

 

Answer: d

Learning Objective 3: Explain how to measure property, plant and equipment on initial recognition

 

 

23) Subsequent to the initial recognition of an asset an entity has a choice on the measurement basis to be adopted. The choice is between:

 

1. a) cash and accrual.

*b) cost and revaluation.

1. c) tax and accounting.
2. d) current and non-current.

 

Answer: b

Learning Objective 4: Explain the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition

 

 

 

 

24) When applying a revaluation measurement model to assets, the model:

 

*a) applies to the entire class of non-current assets.

1. b) may only be applied to current assets.
2. c) is applied permanently and may not be changed.
3. d) is applied to individual assets within a class of non-current assets.

 

Answer: a

Learning Objective 4: Explain the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition

 

 

25) Depreciation is a process that is designed to:

 

1. a) reduce the carrying amount of an asset to reflect the diminishing fair value of the asset.
2. b) spread the cost of an asset across a period no greater than 5 years.
3. c) reflect the change in value of an asset as a result of obsolescence.

*d) allocate the cost of an asset across its useful life to an entity.

 

Answer: d

Learning Objective 5: Explain the cost model of measurement and understand the nature and calculation of depreciation

 

 

26) Under AASB 116, the depreciation charge for a period reflects:

 

1. a) the fall in the fair value of the asset across the period.
2. b) a change in the re-sale value of the asset that has occurred over the period.

*c) the consumption of economic benefits over the period.

1. d) a reduction in the estimated market value of the asset across the period.

 

Answer: c

Learning Objective 5: Explain the cost model of measurement and understand the nature and calculation of depreciation

 

 

 

 

27) ABC Limited acquired an item of plant on 1 July 2012 for $80 000. The estimated useful life of the plant at acquisition date was 5 years and the residual value $5000. The company sold the plant on 1 January 2016 for $30 000. The journal entry to reflect the sale is:

 

1. a)

DR Cash	$30 000
DR Accumulated depreciation	$56 000
CR Plant		$80 000
CR Gain on sale		$ 6 000

1. b)

DR Cash	$30 000
CR Proceeds on sale		$30 000
DR Carrying amount of plant	$27 500
CR Plant		$27 500

1. c)

DR Cash	$30 000
DR Loss on sale	$ 2 500
CR Plant		$32 500

*d)

DR Cash	$30 000
DR Accumulated depreciation	$52 500
CR Plant		$80 000
CR Gain on sale		$ 2 500

 

Answer: d

Learning Objective 7: Account for derecognition