Assets Overview - Test Bank 9th

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Chapter 04 Testbank

1. In situations where the fair value of the asset being given up is difficult to determine, perhaps because the asset is of a type that is not commonly traded, it is not permissible to use the fair value of the asset being acquired as its cost.

True   False

2. It is possible for an entity to acquire an item of property, plant and equipment and arrange with the vendor that the payment will not be made for some time.

True   False

3. According to AASB 13, the cost approach represents a valuation technique that reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost).

True   False

4. The cost of an item of property, plant and equipment is the cash price equivalent at the acquisition date, that is, the cost of the item must be determined by discounting the amounts payable in the future to their present value at the date of acquisition.

True   False

5. A ‘qualifying asset’ is defined in AASB 123 as ‘an asset that necessarily takes a substantial period of time to get ready for its intended use or sale’.

True   False

6. If there is a relatively high degree of uncertainty about whether an entity has the appropriate rights to use an asset, or difficulty in assessing the likelihood that future flows of economic benefits will actually occur, it might not be relevant to provide related information to the financial statement readers. This statement relates to the idea of:

A. accuracy

B. probability

C. reliability

D. All of the given options are correct.

7. Bella Enterprises recorded as an asset a piece of equipment purchased for $13 000 this period. No depreciation has been recorded as yet and it has been revealed that it is not probable that the equipment will generate future economic benefits. What is the appropriate accounting entry?

A.

B.

C.

D.

8. The decision to expense or capitalise an item is important because:

A. it may have direct implications for the value of the organisation and wealth of managers

B. it may have an impact on contractual arrangements that are based on accounting numbers related to profits and/or assets

C. it may give managers scope to maximise personal wealth, in line with Positive Accounting Theories

D. All of the given options are correct.

9. In the case of classifying a liability as current or non-current, what approach does AASB 101 require if there is no clearly identifiable operating cycle?

A. The most common length of operating cycle for other entities in a comparable industry must be used.

B. The operating cycle of the event that gave rise to the creation of the liability must be used as the basis for determining the liability's operating cycle.

C. The liability is due to be settled within 12 months after the reporting period.

D. The average operating cycle length over all operations of the entity must be used.

10. The classification of assets into current or non-current in the statement of financial position provides useful information on the short-term solvency of the entity when:

A. the entity supplies goods or services within a clearly identifiable normal operating cycle

B. the operating cycle of the entity is greater than 12 months

C. the operating cycle of the entity is less than 12 months

D. the entity is a financial institution

11. O'Briens Construction Ltd exchanged equipment that had a book value of $40 000 for a truck that had a book value (in the other entity's books) of $38 000. The fair value of the equipment is $45 000, and the fair value of the truck is $48 000. Further cost incurred to prepare the truck for use by O'Briens was $700 for signage. What is the acquisition cost of the truck?

A. $48 700

B. $40 000

C. $48 000

D. $45 700

12. Which of the following is considered to be an asset?

A. property, plant and equipment

B. accounts receivable (debtors)

C. prepayments

D. All of the given options are correct.

13. An accountant is not sure how to recognise an asset that is purchased in excess of fair value. Which of the following actions will you recommend?

A. Recognise the asset at fair value and the excess as goodwill

B. Recognise the asset at fair value and the excess as a loss on purchase

C. Recognise the asset at fair value and the excess as receivable from supplier

D. Recognise the asset at cost

14. Using the cost model outlined in AASB 116 to measure property, plant and equipment at acquisition, which of the following costs would not be included?

A. Directly attributable costs

B. Initial estimates of dismantling and removal costs

C. 12-month servicing plan

D. Purchase price

15. Certain classes of property, plant and equipment, for example, aircraft, might comprise a number of individual component parts. How does AASB 116 paragraph 43 require these components be accounted for?

A. The components can be measured as one asset.

B. There is a prescribed unit of measurement for recognition that must be followed.

C. Only one depreciation rate can be used for the asset.

D. Each component with a significant cost must be depreciated separately.

16. The cost of an item of property, plant and equipment is the ________ equivalent at the recognition date.

A. credit terms

B. carrying amount

C. cash price

D. borrowing costs

17. AASB 123 defines borrowing costs as ‘interest and other costs incurred by an entity in connection with the borrowing of ________’.

A. funds

B. land

C. machinery

D. equipment

18. __________ is the capacity of an entity to benefit from an asset in the pursuit of the entity’s objectives and to deny or regulate the access of others to that benefit.

A. Provenance (assets)

B. Resource (assets)

C. Control (assets)

D. Benefit (assets)

19. Patents, goodwill, brand names and trademarks are examples of __________.

A. tangible assets

B. intangible assets

C. current assets

D. agricultural assets

20. According to AASB 123, any one of the following may be qualifying assets, depending on the circumstances, except:

A. inventories

B. manufacturing plants

C. power generation facilities

D. mortgage properties

21. Accounting for a ‘contingent asset’ is defined in ____________.

A. AASB 137

B. AASB 123

C. AASB 124

D. AASB 116

22. Non-current assets that a government intends to preserve indefinitely because of their unique historical, cultural or environmental attributes are known as ___________.

A. heritage assets

B. intangible assets

C. environmental assets

D. agricultural assets

23. Which among the following is NOT a valuation technique according to ASSB 13?

A. market approach

B. cost approach

C. income approach

D. historical approach

24. ________________ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (AASB 13).

A. Face value

B. Fair value

C. Market value

D. Historical cost

25. _____________ is a measure of the short-term liquidity or solvency of an organisation and is determined by dividing current assets by current liabilities.

A. Current ratio

B. Accounting ratio

C. Financial ratio

D. Asset-based ratio

26. AASB 123 defines ____________ as ‘interest and other costs incurred by an entity in connection with the borrowing of funds’.

A. borrowing costs

B. interest costs

C. qualifying asset

D. weighted average costs

27. Paragraph 54 of AASB 101 requires that the statement of financial position is to include line items, except for:

A. property, plant and equipment

B. investment property

C. intangible assets

D. financial liabilities

28. _______, plant and equipment is a non-current asset that often accounts for a significant proportion of the total assets of an organisation.

A. Leases

B. Property

C. Money

D. Storage

29. Discuss the approaches recommended by AASB 101 to present assets in the statement of financial position.

______________________________________________________________________________

30. Discuss the accounting treatment for restoration costs with respect to acquisition of assets.

______________________________________________________________________________

31. Define ‘asset’ as per the IASB Conceptual Framework for Financial Reporting

______________________________________________________________________________

32. What is the purpose of understanding the recognition criteria for assets?

______________________________________________________________________________

33. What is an intangible asset? List some examples.

______________________________________________________________________________

34. What is the basic accounting equation for ‘Assets’?

______________________________________________________________________________

35. What is a current ratio?

______________________________________________________________________________

36. What are the criteria applicable to the cost of an item of property, plant and equipment to be recognised as an asset?

______________________________________________________________________________

37. What is the meaning of ‘fair value’?

______________________________________________________________________________

38. If an asset is constructed with the use of borrowed funds, how are the related interest costs to be treated?

______________________________________________________________________________

39. Define ‘contingent asset’ according to AASB 137.

______________________________________________________________________________

40. Describe, with reference to the relevant standard, how to account for an asset that has been acquired at no direct cost.

______________________________________________________________________________

Chapter 04 Testbank