Issues in Financial Accounting 15th

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Exam
Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Which of these would be classed as a current asset?

A) Goodwill
B) Investment not expected to be realised within 12 months
C) Delivery vehicle
D) Cash at bank
Answer: D
Diff: 1 Page Ref: 176

2) The accounting standard that specifically deals with property, plant and equipment is:

A) AASB 138
B) AASB 116
C) AASB 132
D) AASB 101
Answer: B
Diff: 1 Page Ref: 176

3) Under AASB 116 if an item of property, plant and equipment is acquired for cash, the cost includes:

A) the purchase price after deducting trade discounts and rebates

B) the insurance premium paid to cover the asset for the first 12 months of its life
C) any import duties
D) all of the above
E) both A and C
Answer: E
Diff: 2 Page Ref: 177

4) Under AAS 29, Paragraph 15.1 'Financial Reporting by Government Departments' the entry that is required by a
government department to record the fair value of a donated asset is:

A) debit asset, credit loan

B) debit asset, credit revaluation surplus
C) would not need to be recorded
D) debit asset, credit revenue
Answer: D
Diff: 3 Page Ref: 181

5) Under AASB 123 'Borrowing Costs':

A) borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset may be
capitalised
B) all borrowing costs must be expensed
C) all borrowing costs must be capitalised
D) none of the above is correct
Answer: A
Diff: 2 Page Ref: 181-186

6) If borrowing costs are capitalised, capitalisation continues:

A) for the life of the qualifying asset
B) up to where substantially all the activities necessary to prepare the qualifying assets for its intended use or sale are
complete
C) for the life of the business
D) none of the above
Answer: B
Diff: 2 Page Ref: 184

7) Under AASB 116 the statement that is correct is:

A) subsequent to initial recognition, items of property, plant and equipment must be measured using either the cost
model or the revaluation model
B) all items of property, plant and equipment must be measured using the cost model, except if they are qualifying assets
C) assets of the same class of property, plant and equipment can be measured using different models
D) all of the statements are correct
Answer: A
Diff: 2 Page Ref: 189

8) Which statement is correct?

A) A change between the cost model and the revaluation model may be made only if the change is material
B) A change between the cost model and the revaluation model may be made only if the change results in financial
information that is more relevant and reliable as per AASB 108
C) For existing assets a new selection can be made each year between the cost model and the revaluation model
D) A change between the cost model and the revaluation model is never permitted
Answer: B
Diff: 3 Page Ref: 189

9) Under AASB 116:

A) net revaluation decrements are normally required to be credited to a revaluation surplus

B) net revaluation increments are normally required to be credited to an income account
C) net revaluation decrements are normally required to be debited to a revaluation surplus
D) net revaluation increments are normally required to be credited to a revaluation surplus
Answer: D
Diff: 1 Page Ref: 188-192

10) AASB 116 specifies that if an item of property, plant and equipment is sold,+ then the gain or loss on disposal is
measured as the difference between:

A) the carrying amount at the time of disposal and the net proceeds from disposal
B) the re-valued amount at the time of disposal and the net proceeds from disposal
C) the adjusted carrying amount at the time of disposal and the net proceeds from disposal
D) none of the above
Answer: A
Diff: 2 Page Ref: 193

11) AASB 116 requires the capitalisation of inspection costs associated with an asset when:

A) future economic benefits associated with the inspection will flow to the entity
B) it is probable that benefits will flow to the entity
C) the economic benefits can be measured reliably
D) all of the above
Answer: D
Diff: 2 Page Ref: 177

12) On 1 January 20X0 an asset that had a useful life of five years and a cost of $100 000, had a carrying value of $60 000.
(The asset had been depreciated for two years at $20 000 per annum). On 1 January 20X0 it was decided to revalue the
asset upwards to $90 000 with no change in its useful life. A year after the revaluation on 1 January 20X1 the asset was
sold for $80 000. Under the provisions of AASB 116, the gain or loss on disposal is:

A) $10 000 gain

B) $20 000 gain
C) $10 000 loss
D) $30 000 gain
Answer: B
Diff: 2 Page Ref: 195

13) Under the provisions of AASB 116, concerning an asset that has been re-valued upward, which statement is correct?

A) If the asset is disposed of, the revaluation surplus can remain in the accounts after the disposal of the asset that created
it
B) The amount of the revaluation increment is included in equity without being included in net profit
C) Neither of the statements is correct
D) Both of the statements are correct
Answer: D
Diff: 2 Page Ref: 195

14) Under AASB 116, the net method of treating accumulated depreciation when assets are re-valued requires:

A) accumulated depreciation to be increased by the same proportion as the gross carrying amount of the asset, so the
carrying amount of the asset represents its re-valued amount
B) accumulated depreciation to be closed to the asset account before re-valuation
C) accumulated depreciation to be written back to net profit on the date of re-valuation
D) accumulated depreciation to be ignored at re-valuation
Answer: B
Diff: 2 Page Ref: 189-197

15) Which statement concerning AASB 136 'Impairment of Assets' is incorrect?

A) The upper limit on the carrying amount of an asset's 'recoverable amount' is to be applied irrespective of whether the
cost model or the revaluation model is being used for the asset
B) Recoverable amount is the net amount that is expected to be recovered through the use or sale of the asset
C) The write down to recoverable amount must be recognised as an impairment loss in the income statement for the
period
D) A non-current asset must be written up to its recoverable amount when its recoverable amount is greater than its
carrying amount
Answer: D
Diff: 2 Page Ref: 198-202

16) AASB 136 proposes factors that may indicate the existence of asset impairment. Which of the following is not one of
those factors?

A) Evidence of obsolescence or physical damage to an asset

B) Changes in interest rates that would reduce fair value calculations involving future cash flows
C) The carrying amount of net assets exceeds the entity's market capitalisation
D) None of the above, i.e., all are factors that may indicate the existence of impairment
Answer: D
Diff: 2 Page Ref: 199-201

17) What is the meaning of the word 'depreciation' in contemporary accounting?

A) An allocation of cost
B) A physical deterioration
C) A fall in price
D) A fall in value
Answer: A
Diff: 1 Page Ref: 212-216

18) A subsequent increase in the value of goodwill that has previously been written off as an impairment loss:

A) must not be reversed in subsequent periods

B) must be reversed in the period in which the value has changed
C) is allocated over the other assets in the cash generating unit in proportion to their carrying amounts
D) all of the above
Answer: A
Diff: 3 Page Ref: 214

19) Which statement concerning depreciation is correct?

A) Land is depreciated
B) Assets that have increased in value should still be depreciated
C) Charging depreciation provides cash for asset replacement
D) None of the statements is correct
Answer: B
Diff: 2 Page Ref: 215-217

20) An asset should be depreciated over its:

A) technical life
B) economic life
C) legal life
D) physical life
Answer: B
Diff: 1 Page Ref: 219

21) Which factors should be taken into account when selecting a depreciation method?

A) The profit or loss for the year

B) Whether the asset has been re-valued
C) The amount that can be claimed as a tax deduction
D) None of the above
Answer: D
Diff: 2 Page Ref: 219-221

22) Assume that an asset was bought at a cost of $50 000. It is expected that the asset will have a useful life of 10 years
with the straight-line depreciation method being used. At the beginning of year 5 the total useful life is re-estimated
downward to 8 years. Under AASB 116 the annual depreciation expense for the final years of useful life is:
A) $7500
B) $5000
C) $4500
D) $3000
Answer: A
Diff: 3 Page Ref: 219

23) Which of these items does AASB 116 apply to?

A) Assets held for sale

B) Biological assets
C) Mineral rights and mineral reserves
D) None of the above
Answer: D
Diff: 1 Page Ref: 222

24) Depreciable amount is defined in AASB 116 as:

A) the allocation of the cost of an asset, or other amount substituted for cost, over its useful life
B) the cost of an asset, or other amount substituted for cost, less accumulated depreciation
C) the cost of an asset, or other amount substituted for cost, less its residual value
D) none of the above
Answer: C
Diff: 2 Page Ref: 222

25) Under AASB 123 'Borrowing Costs', a qualifying asset is defined as:

A) an asset that takes more than twelve months to complete

B) an asset that necessarily takes a substantial period of time to get ready for its intended use or sale
C) a long-term construction project for the construction of ships, dams, roads or buildings
D) an asset that necessarily takes more than two years to complete
Answer: B
Diff: 3 Page Ref: 183-185

26) Under AASB 116, which of the following would normally not be regarded as separate classes of assets?

A) Computer equipment
B) Office desks
C) Motor vehicles
D) None of the above, i.e., all would normally be regarded as separate classes of assets
Answer: B
Diff: 1 Page Ref: 191

ESSAY. Write your answer in the space provided or on a separate sheet of paper.
27) Should borrowing costs incurred during the construction period of an asset be expensed or capitalised? Discuss.
Answer:
Diff: 2 Page Ref: 183-185

28) Explain and discuss how donated assets should be recorded in the accounts.
Answer:
Diff: 2 Page Ref: 181
29) AASB 116 para 6, defines depreciation expense as 'an expense recognised systematically for the purpose of allocating
the depreciable amount of a depreciable asset over its useful life.'

Explain the terms, 'depreciable amount' and 'useful life' and discuss the nature of depreciation that is implied by this
definition.
Answer:
Diff: 1 Page Ref: 217-218

30) AASB 136 requires that assets are carried at no more than their recoverable amount. Outline the accounting treatment
required to recognise an impairment loss. In your answer discuss the subsequent reversal of an impairment loss.
Answer:
Diff: 2 Page Ref: 199-202
1) D
2) B
3) E
4) D
5) A
6) B
7) A
8) B
9) D
10) A
11) D
12) B
13) D
14) B
15) D
16) D
17) A
18) A
19) B
20) B
21) D
22) A
23) D
24) C
25) B
26) B
27)
28)
29)
30)