1. Which of the following is not an asset that falls under the scope of IAS 16?

a. Tangible assets
b. Assets held for the production or supply of goods or services
c. Assets held for sale in the normal course of business
d. Assets expected to be used for more than one period

Assets, which are held for sale in the normal course of business, are accounted for using IAS 2 –
Inventories

2. Which of these is an allowable cost of an asset under IAS 16?

a. Professional fees
b. General overheads
c. Initial operating losses
d. Administration expenses

Professional fees are allowed as a cost of an asset, so long as the costs incurred relate directly to the
asset.

3. Under IAS 16, which of the following is not allowable as a directly attributable cost of a
machine?
a. Initial test batches
b. Site preparation
c. Delivery
d. Estimated dismantling costs

Initial test batches are not allowable as a directly attributable cost of an asset. If they cannot be used
they should be expensed to the SOCI, if they can be used they should be recorded as inventory.

4. Under IAS 16, which two subsequent accounting treatments are allowed subsequently to initial
recognition?
a. Cost model and present value model
b. Cost model and revaluation model
c. Fair value model and revaluation model
d. Fair value model and cost model
5. If an asset increases in value, the increase is noted as…
a. An increase in net profit in the SOCI
b. An increase in revaluation surplus in the SOFP and other comprehensive income in the
SOCI
c. An increase in retained earnings in SOFP
d. An increase in “other profit” in SOCI

If a revaluation results in an increase in value, it should be credited to other comprehensive income and
accumulated in equity under the heading “revaluation surplus” unless it represents the reversal of a
revaluation decrease of the same asset previously recognised as an expense, in which case it should be
recognised in profit or loss.

6. When it is _______ that future economic benefits associated with an asset will flow to the
entity, and the costs can be _____ measured, it should be recognised as an asset.
 a. Possible, reasonably
b. Possible, reliably
c. Probable, reliably
d. Probable, reasonably

When it is probably that future economic benefits associated with an asset will flow to the entity, and
the costs can be reliably measured, it should be recognised as an asset.

7. When an asset is sold or disposed of, where is the gain or loss recognized?
a. Asset disposal account
b. Profit and loss
c. Revaluation reserve
d. Depreciation

Gains and losses on the sale or disposal of an asset are recognised as income or an expense in the profit
and loss.

8. A change in depreciation method is a…

a. Change in accounting policy
b. Change in accounting estimate
c. Change in accounting method
d. Change in accounting standard

A change in depreciation method is a change in accounting estimate and the depreciation charge for the
current and future periods should be adjusted accordingly.

9. A company purchases land with an office building. The building has a useful life of 20 years. How
should the land be depreciated?
a. Depreciate over 20 years
b. Depreciate over useful life of the land
c. Don’t depreciate the land
d. None of these

Land has an unlimited life and is not depreciated.

10. What is the amount an asset could achieve if sold between knowledgeable, willing parties in an
arm’s length transaction?
a. Current value
b. Net present value
c. Written down value
d. Fair value
11. Under IAS 16, if assets are exchanged in an arm’s length, commercial transaction, their value will
be measured at:
a. Written down value
b. Fair value
c. Carrying value
d. Net present value
Fair value –

If an asset is acquired in exchange for another asset, the cost will be measured at fair value unless

(a) the exchange transaction lacks commercial substance or

(b) the fair value of neither the asset received nor the asset given up is reliably measurable.

If the acquired item is not measured at fair value, cost is measured at the carrying amount of the asset
given up.

12. The purpose of depreciation is so an asset can be replaced at the end of its useful life.
a. True
b. False

False. The purpose of depreciation is to apportion the cost of an asset over the periods it will be used in.
It would be inappropriate to charge the entire cost of an asset to one accounting period if it will be used
over several periods. Whether an asset will be replaced at the end of its useful life does not change the
requirement to depreciate it.

13. Which of the following disclosures is not required when an asset is revalued?
a. Name of valuer
b. Basis used
c. Effective date of revaluation
d. Revaluation surplus
e. Whether valuer was independent

The name of the valuer is not a required disclosure when an asset is revalued.

14. Under IAS 16, if an asset is idle…

a. Depreciation is paused
b. Depreciation for the entire period does not apply
c. Depreciation continues
d. Depreciation is ignored

Depreciation begins when the asset is available for use and continues until the asset is derecognised.
Even if it is not in use, it is depreciated.

15. What is an impairment loss?

a. The amount by which the carrying amount of an asset exceeds the recoverable amount
b. The amount by which the market value of an asset exceeds the net present value
c. The difference between the fair value of an asset and the net realisable value of the
asset
d. The amount by which the carrying amount of an asset exceeds the book value

The amount by which the carrying amount of an asset exceeds the recoverable amount.

16. What is the net amount an entity expects to obtain for an asset at the end of its useful life?
 a. Residual value
b. Depreciated value
c. Present value
d. Fair value
17. How should an asset be initially recognised in the financial statements?
a. Measure at market value
b. Measure at cost
c. Measure at net realisable value
d. Measure at fair value
18. If one large asset has a number of individual components with different useful lives, how should
this be depreciated?
a. Treat as one asset
b. Break down into different parts
c. Expense it all
d. Treat as one asset, but disclose in the notes to the financial statements

Break down into different parts. This often occurs with assets such as aircraft, where the body of the
aircraft may have a useful life of 20-30 years, but the engines may require replacing every 5 years. In
cases like these, the body and aircraft should be noted separately and depreciated differently.

19. Which of the following is not a component of cost of an asset?

a. Purchase price
b. Import duties
c. Refundable sales tax
d. Estimate of compulsory future dismantling costs

A refundable tax is not allowable as a cost, this will be recovered at a later date by the entity.

20. Which of the following is covered by IAS 16 – Property, Plant and Equipment?
a. Assets held for sale
b. Biological assets related to agricultural activity
c. Exploration assets
d. Office buildings
e. All of these

Assets held for sale are accounted for using IFRS 5 – Non-Current Assets Held for Sale and Discontinued
Operations. Biological assets related to agricultural activity are dealt with under IAS 41 – Agriculture.
Mineral rights are accounted for using IFRS 6 – Exploration for and Evaluation of Minteral Resources.

21. When an item of property, plant and equipment is revalued, what should be revalued?
a. A selection of assets decided by management
b. The whole class of assets to which it belongs
c. The individual asset
d. A selection of assets picked at random
The whole class of assets to which it belongs should be revalued. This prevents a mixture of cost and
values appearing in the financial statements. It also prevents management from picking only the best
assets to revalue.

22. Under IAS 16, how often should the useful life of an asset be reviewed?
a. At least at each financial year end
b. Every six months
c. At management’s discretion
d. Never

The useful life of property, plant and equipment should be reviewed at least each financial year end.

23. If an asset decreases in value, the decrease is noted as…

a. An expense in the SOCI
b. A decrease in the “revaluation surplus” in the SOFP
c. A decrease in retained earnings in the SOFP
d. As “valuation deficit” in the SOFP

A decrease arising as a result of a revaluation should be recognized as an expense in the SOCI to the
extent that it exceeds any amount previously credited to the revaluation surplus relating to the same
asset.

24. What is the amount an asset is recognized at in the SOFP less any accumulated depreciation or
impairment losses?
a. Carrying amount
b. Residual value
c. Impairment amount
d. Fair value