Tangible non-current assets I (Y7C6)

1

What is the purpose of charging depreciation in financial statements?

A

To allocate the cost of a non-current asset over the accounting periods expected to benefits from its use

B

To ensure that funds are available for the eventual replacement of the asset

C

To reduce the cost of the asset in the statement of financial position to its estimated market value

D

To account for the ‘wearing-out’ of the asset over its life

2

Which of the statements below correctly states the purpose of the asset register?

A

An internal control to ensure details of all assets are readily available in the event of loss or theft

B

To ensure the organisation is aware of the age of plant and machinery

C

An internal control to ensure information relating to non-current assets in the nominal ledger and the financial statements is correct

D

To enable the organisation to comply with IAS 16 Property, plant and equipment

3

An asset register showed a carrying amount of $67,460. A non-current asset costing $15,000 had been sold for $4,000, making a loss on disposal of $1,250. No entries had been made in the asset register for this disposal. What is the correct balance on the asset register?

A

$42,710

B

$51,210

C

$53,710

D

$62,210

4

An organisation’s asset register shows a carrying amount of 4145,600. The non-current asset account in the nominal ledger shows a carrying amount of $135,600. The difference could be due to a disposed asset not having been deducted from the asset register. Which one of the following could represent that asset?

A

Asset with disposal proceeds of $15,000 and a profit on disposal of $5,000

B

Asset with disposal proceeds of $15,000 and a carrying amount of $5,000

C

Asset with disposal proceeds of $15,000 and a loss on disposal of $5,000

D

Asset with disposal proceeds of $5,000 and a carrying amount of $5,000

5

Which one of the following would occur if the purchase of computer stationary was debited to the computer equipment at cost account?

A

An overstatement of profit and an overstatement of non-current assets

B

An understatement of profit and an overstatement of non-current assets

C

An overstatement of profit and an understatement of non-current assets

D

An understatement of profit and an understatement of non-current assets

6

Which one of the following statements correctly defines non-current assets?

A

Assets that are held for use in the production of goods or services and are expected to be used during more than one accounting period

B

Assets which are intended to be used by the business on a continuing basis, including both tangible and intangible assets that do not meet the IASB definition of a current asset

C

Non-monetary assets without physical substance that are controlled by the entity and from which future benefits are expected to flow

D

Assets in the form of materials or supplies to be consumed in the production process

7

A company bought a property four years ago on 1 January for $170,000. Since then property prices have risen substantially and the property has been revalued at $210,000. The property was estimated as having a useful life of 20 years when it was purchased. What is the balance on the revaluation surplus reported in the statement of financial position/.

A

$210,000

B

$136,000

C

$74,000

D

$34,000

8

A business purchased a motor car on 1 July 20x3 for $20,000. It is to be depreciated at 20 percent per year on the straight line basis, assuming a residual value at the end of five years of $4,000, with a proportionate depreciation charge in the years of purchase and disposal. The $20,000 cost was correctly entered in the cash book but posted to the debit of the motor vehicles repairs account. How will the business profit for the year ended 31 December 20x3 be affected by the error?

A

Understated by $18,400

B

Understated by $16,800

C

Overstated by $18,400

D

Overstated by $16,800

9

A company’s policy is to charge depreciation on plant and machinery at 20% per year on cost, with proportional depreciation for items purchased or sold during a year. The company’s plant and machinery at cost account for the year ended 30 September 20x3 is shown below.

PLANT AND MACHINERY - COST

$

$

20x2

20x3

1 Oct

Balance

200,000

30 Jun

Transfer disposal account

40,000

20x3

30 Sep

Balance

210,000

1 Apr

Cash-purchase of plant

50,000

250,000

250,000

What should be the depreciation charge for plant and machinery (excluding any profit or loss on the disposal) for the year ended 30 September 20x3?

A

$43,000

B

$51,000

C

$42,000

D

$45,000

10

The plant and machinery at cost account of a business for the year ended 30 June 20x4 was as follows:

PLANT AND MACHINERY - COST

$

$

20X3

20x3

1 Jul

Balance

240,000

30 Sep

Transfer disposal account

60,000

20x4

20x4

1 Jan

Cash – purchase of plant

160,000

30 Jun

Balance

340,000

400,000

400,000

The company’s policy is to charge depreciation at 20% per year on the reducing balance basis, with proportionate depreciation in the years of purchase and disposal.

What should be the depreciation charge for the year ended 30 June 20x4?

A

$68,000

B

$64,000

C

$61,000

D

$55,000

11

A manufacturing company receives an invoice on 29 February 20x2 for work done on one of its machines. $25,500 of the cost is actually for a machine upgrade, which will improve efficiency. The accounts department do not notice and charge the whole amount to maintenance costs. Machinery is depreciated at 25% per annum on straight-line basis, with a proportional charge in the years of acquisition and disposal. By what amount will the profit for the year to 30 June 20x2 be understated?

A

$19,125

B

$25,500

C

$23,375

D

$21,250

12

W bought a new printing machine. The cost of the machine was $80,000. The installation costs were $5,000 and the employees received training on how to use the machine, at a cost of $2,000. Before using the machine to print customers’ orders, a test was undertaken and the paper and ink cost $1,000. What should be the cost of the machine in the company’s statement of financial position?

A

$80,000

B

$85,000

C

$86,000

D

$88,000

13

What are the correct ledger entries to record an acquisition of a non-current asset on credit?

Debit

Credit

A

Non-current assets – cost

Receivables

B

Payables

Non-current assets - cost

C

Non-current assets – cost

Payables

D

Non-current assets – cost

Revaluation surplus

14

Alpha sells machine B for $50,000 cash on 30 April 20x4. Machine B cost $100,000 when it was purchased and has a carrying amount of $65,000 at the date of disposal. What are the journal entries to record the disposal of machine B?

A

Dr Accumulated depreciation Dr Loss on disposal (SPL) Dr Cash Cr Non-current assets - cost

$35,000 $15,000 $50,000

$100,000

B

Dr Accumulated depreciation Dr Loss on disposal (SPL) Cr Non-current assets- cost

$65,000 $35,000

$100,000

C

Dr Accumulated depreciation Dr Cash Cr Non-current assets Cr Profit on disposal (SPL)

$35,000 $50,000

$65,000 $20,000

D

Dr Non-current assets Dr Accumulated depreciation Cr Cash Cr Profit on disposal (SPL)

$65,000 $35,000 $50,000

$50,000

15

Which of the following statements are correct?

1

IAS 16 Property, plant and equipment requires entities to disclose the purchase date of each asset.

2

The carrying amount of a non-current asset is the cost or valuation of that asset less accumulated depreciation.

3

IAS 16 Property, plant and equipment permits entities to make a transfer from the revaluation surplus to retained earnings for excess depreciation on revaluation assets.

4

Once decided, the useful life of a non-current asset should not be changed.

A

1, 2 and 3

B

2 and 3 only

C

2 and 4 only

D

1, 2 and 4 only

The following information is relevant for questions 16 and 17.

Gusna Co purchased a building on 31 December 20X1 for $750,000. At the date of acquisition, the useful life of the building was estimated to be 25 years and depreciation is calculated using the straight-line method. At 31 December 20X6, an independent valuer valued the building at $1,000,000 and the revaluation was recognised in the financial statements. Gusna’s accounting policies state that excess depreciation arising on revaluation of non-current assets can be transferred from the revaluation surplus to retained earnings.

16

What is the depreciation charge on the building for the year ended 31 December 20X7?

A

$40,000

B

$50,000

C

$30,000

D

$42,500

17

What is the journal entry to record the transfer of excess depreciation from the revaluation surplus to retained earnings?

A

Dr Revaluation surplus Cr Retained earnings

$20,000

$20,000

B

Dr Revaluation surplus Cr Retained earnings

$12,500

$12,500

C

Dr Retained earnings Cr Revaluation surplus

$20,000

$20,000

D

Dr Retained earnings Cr Revaluation surplus

$12,500

$12,500

18

Which of the following should be disclosed for tangible non-current assets according to IAS 16 Property, plant and equipment?

1

Depreciation methods used and the total depreciation allocated for the period

2

A reconciliation of the carrying amount of non-current assets at the beginning and end of the period

3

For revalued assets, whether an independent valuer was involved in the valuation

4

For revalued assets, the effective date of the revaluation

A

1, 2 and 4 only

B

1 and 2 only

C

1, 2, 3 and 4

D

1, 3 and 4 only

19

Which of the following should be included in the reconciliation of the carrying amount of tangible non-current assets at the beginning and end of the accounting period?

1

Additions

2

Disposals

3

Depreciation

4

Increases/decreases from revaluations

A

1 and 3 only

B

A, 2 and 3 only

C

1, 3 and 4

D

1, 2, 3 and 4