Non-Current Assets: Acquisition and Depreciation – 11e - Financial Accounting 11e | Test Bank with Answer Key by John Hoggett by John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield. DOCX document preview.
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Testbank
to accompany
Accounting
11th edition
by
Hoggett et al.
© John Wiley & Sons Australia, Ltd 2020
Chapter 14: Non-current assets: acquisition and depreciation
Multiple-choice questions
1. Which of the following is not an example of a fixed asset for a company engaged in coal mining?
a. Mining equipment
b. Land
c. Storage depot
d. Stock of coal
General Feedback:
Learning objective 14.1: explain the nature of property, plant and equipment.
2. The factor that distinguishes fixed assets such as property, plant and equipment from other assets is the:
a. intention to use the asset for the future production of goods and services.
b. intention to sell the asset.
c. fact that they have a physical existence.
d. fact that the asset will provide future benefits.
General Feedback:
Learning objective 14.1: explain the nature of property, plant and equipment.
3. A transport company would classify their delivery vehicles on the statement of financial position as:
a. contra assets.
b. non-current assets.
c. non-current liabilities.
d. current assets.
General Feedback:
Learning objective 14.1: explain the nature of property, plant and equipment.
4. Harrison Company incurred the following expenses in acquiring fixtures and fittings for their warehouse.
Gross invoice price (including GST) $33 000
Transportation costs to get the fixtures and fittings to the warehouse
(net of GST) $400
Twelve month insurance policy on the fixtures and fittings (net of GST) $800
The equipment should be recorded in the company's books at:
a. $31 200.
b. $33 000.
c. $34 200.
d. $30 400.
General Feedback:
Learning objective 14.2: compute the cost of property, plant and equipment.
Feedback: $30 400 = $30 000 + $400.
5. When a second-hand building is purchased which of the following should be recognised in a separate asset account instead of being debited to the building account?
a. The cost of installing an air conditioning system
b. Legal fees for the purchase of the building
c. Stamp duty paid on the building purchase
d. Expenditure on initial repairs to the floor of the building
General Feedback:
Learning objective 14.2: compute the cost of property, plant and equipment.
6. IAS 16/AASB 116 specifies that all assets must be accounted for on acquisition at:
a. net realisable value.
b. cost.
c. depreciable value.
d. market value.
General Feedback:
Learning objective 14.2: compute the cost of property, plant and equipment.
7. Ignoring GST, the correct entry to record the purchase of a motor vehicle for $45 000 cash is:
a. DR Motor vehicles $45 000; CR Bank $45 000
b. DR Motor vehicles $45 000; CR Accounts receivable $45 000
c. DR Motor vehicles $45 000; CR Equity $45 000
d. DR Bank $45 000; CR Motor vehicles $45 000
General Feedback:
Learning objective 14.2: compute the cost of property, plant and equipment.
8. Green Pastures has acquired equipment and incurred the following expenses.
Gross invoice price, net of GST, subject to terms of 5/10, n/30) $46 500
Transportation costs to get equipment to factory $3 200
Speeding ticket incurred by company driver while
delivering equipment to the factory $120
Cost to repair wall damaged during installation $1 200
Special permit to allow wide load on freeway $600
The equipment should be recorded in Green Pastures' records at:
a. $49 700.
b. $51 500.
c. $46 500.
d. $50 300.
General Feedback:
Learning objective 14.2: compute the cost of property, plant and equipment.
Feedback: $46 500 + $3 200 + $600
9. IAS 16/AASB 116 Property, Plant and Equipment specifies that the cost of acquisition for fixed assets includes:
a. invoice cost plus freight inwards, plus other costs of acquiring the asset.
b. invoice cost.
c. purchase cost plus any incidental costs directly attributable to acquiring the asset and getting it ready for use.
d. carrying value in the previous owner's books.
General Feedback:
Learning objective 14.2: compute the cost of property, plant and equipment.
10. A popular method for an entity to acquire the benefits of property, plant and equipment is to lease assets. Which of the following asset types are commonly subject to lease agreements?
I. Buildings
II. Motor vehicles
III. Storage space
IV. Equipment and Machinery
a. I, II, III and IV.
b. I and III only
c. II and IV only
d. I, II and IV only
General Feedback:
Learning objective 14.2: compute the cost of property, plant and equipment.
11. The correct entry to record the purchase of a motor vehicle for $40 000 cash, plus 10% GST is which of the following?
a. DR Motor vehicles $44 000; CR Bank $44 000
b. DR Motor vehicles $44 000; CR Bank $40 000; CR GST collected $4000
c. DR Motor vehicles $36 000; DR GST receivable $4000; CR Bank $40 000
d. DR Motor vehicles $40 000; DR GST receivable $4000; CR Bank $44 000
General Feedback:
Learning objective 14.3: apportion the cost of a lump-sum payment for multiple asset
12. Items of property, plant and equipment may be acquired for a lump-sum without identification of the cost of each asset. The total cost must be allocated to the individual assets based on:
a. independent valuation.
b. fair value at date of acquisition.
c. market value at the date of acquisition.
d. replacement value.
General Feedback:
Learning objective 14.3: apportion the cost of a lump-sum payment for multiple asset acquisitions.
13. In the financial statements prepared at the end of the accounting period the Accumulated Depreciation account appears on:
a. the statement of financial position as a deduction from the related asset.
b. the statement of financial performance as an expense.
c. both the statement of financial position and the statement of financial performance.
d. the statement of financial position as a liability.
General Feedback:
Learning objective 14.3: apportion the cost of a lump-sum payment for multiple asset
14. Buster Limited purchased a small clothing company for $180 000 (net of GST). The fair values of the individual assets acquired (net of GST) were as follows.
What amount should Buster Limited record for the shop fittings?
a. $50 000
b. $22 727
c. $61 111
d. $40 909
General Feedback:
Learning objective 14.3: apportion the cost of a lump-sum payment for multiple asset
Feedback: $50 000/$220 000 x $180 000
15. On what basis would the costs of several items of property, plant and equipment, acquired for a lump-sum payment, normally be allocated?
a. Replacement cost at acquisition date
b. Fair value at acquisition date
c. Independent valuation at acquisition date
d. Net realisable value at acquisition date
General Feedback:
Learning objective 14.3: apportion the cost of a lump-sum payment for multiple asset
16. Kev's Truck Company purchased three trucks for $150 000 each by paying a deposit of $200 000 and agreeing to pay the balance at the end six months. Ignoring GST, the journal entry to record the acquisition is:
a. 
b. 
c. 
d. 
17. The most commonly used depreciation method in Australia, as disclosed by a survey of the annual reports of listed companies, is:
a. sum-of-the digits.
b. units-of-use.
c. reducing-balance.
d. straight-line.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
18. Depreciation is classified as a(n):
a. contra expense in the statement of financial performance.
b. expense in the statement of financial performance.
c. contra asset in the statement of financial position .
d. liability in the statement of financial position.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
19. Which of the following are ways in which a residual value can be recovered from an asset on its disposal?
I. Trade in
II. Sell second-hand
III. Gift the asset to charity
IV. Sell for scrap
a. I, II and IV only
b. I, II and III only
c. I, II, III and IV
d. II, III and IV only
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
20. The assumption underlying the reducing balance method of depreciation is:
a. the asset makes a higher contribution to income in the earlier years of its life.
b. the asset makes a lower contribution to income in the earlier years of its life and a higher contribution in the later years.
c. the asset makes the same contribution to income in each year of its life.
d. the contribution the asset makes to income depends on its usage.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
21. The Novice Corporation purchased a machine for $80 000 on 1 January 2022. The machine is expected to have a useful life of 5 years, a residual value of zero, and a production capacity of 120 000 units before it is scrapped. The Novice Corporation uses the units-of-production method to calculate depreciation. For the year ending 31 December 2022, the depreciation was $16 000. The number of units produced during 2023 is 30 000. The carrying amount of the machine at 31 December 2023 is:
a. $30 000
b. $44 000
c. $20 000
d. $16 000
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: $44 000 = cost less accumulated depreciation = $80 000 - ($ 16 000 + $20 000) Depreciation 2022. Depreciation 2023 ($80 000 x 30 000/120 000).
22. Myster Co purchased equipment for $25 000. Originally it had an estimated useful life of 4 years and a residual value of $5000. At the beginning of the 4th year of the equipment's life the estimated useful life was extended by a further three years and the residual value was reduced to zero. Myster Co uses the straight-line method to depreciate its equipment. At the end of year 4, how much depreciation should be recorded for the computer?
a. $4 000
b. $5 000
c. $2 500
d. $1 250
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: $2500. Depreciable amount on revision date/remaining useful life = $10 000/4.
23. The is the historical cost of an asset less its residual value.
a. carrying amount.
b. accumulated depreciation.
c. straight-line value.
d. depreciable amount.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
24. When comparing the straight-line and the reducing-balance methods of depreciation, in the later years of the asset's life the depreciation charge using the straight-line method will be:
a. greater.
b. do not have enough information.
c. smaller.
d. the same.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
25. Molly's Manufacturing purchased a machine for $80 000 on 1 January2022. The machine is expected to have a useful life of 5 years, no residual value, and to produce a total of 50 000 units before it is scrapped. Assuming Molly's Manufacturing uses the units-of-production method and actual production during the machine's first year of use is 12 000 units, the depreciation expense for 2022 is:
a. $16 000
b. $7 500
c. $19 200
d. $12 000
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: $19 200 = 12 000 units x $1.60 per unit ($80 000/50 000 units).
26. Depreciation charged at the end of the accounting period is a/an entry.
a. Adjusting
b. Closing
c. Reversing
d. Correcting
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
27. All of the following are common methods used to calculate depreciation except for:
a. Sum-of-the-provisions method
b. Straight-line method
c. Reducing-balance method
d. Units-of-production method
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
28. Which of the following statements concerning the sum-of-the-years'-digits method of depreciation is correct?
a. It is the most common method of depreciation used in Australia.
b. It is an alternative name for the reducing balance method.
c. The formula is: carrying amount multiplied by remaining years of useful life.
d. The depreciation charge per annum decreases over the life of the asset.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
29. Which of the following items are required to calculate depreciation?
I. Estimated residual value
II. Estimated useful life
III. Cost or revalued amount
IV. Method of depreciation
a. I, II, III and IV
b. I and III only
c. II and III only
d. I, II and IV only
30. According to IAS 16/AASB 116, which of the following are factors contributing to the decline in an asset's future economic benefits?
I. Inflation
II. Wear and tear
III. Commercial obsolescence
IV. Technical obsolescence
a. I, II and IV only
b. I, II, III and IV
c. I, III and IV only
d. II, III and IV only
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
31. The allocation of the cost of an asset over its estimated useful life best describes the nature of:
a. depreciation.
b. carrying amount.
c. residual value.
d. obsolescence.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
32. Which of the following statements about depreciation is true?
a. Accumulated depreciation is shown in the financial statements as a contra-expense account.
b. The cash account is affected by depreciation charges.
c. Depreciation represents the amount of cash available to replace assets when they wear out.
d. Accumulated depreciation represents the amount of an asset's cost that has been transferred to depreciation expense to date.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
33. Which of the following statements is incorrect?
a. The total depreciation charged over the life of the asset should be the same regardless of the method of depreciation used.
b. Depreciation is an internal transaction.
c. Depreciation causes cash flow from operations to be greater than profit.
d. The cash at bank account is affected by depreciation.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
34. The underlying assumption of the straight-line method of depreciation is:
a. The asset's contribution to income relates mainly to obsolescence.
b. The asset's contribution to income is variable.
c. The asset makes a higher contribution to income in the earlier years of its life.
d. The asset makes the same contribution to income each year.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
35. Which of the following will have an effect on the amount of depreciation charged on an asset in a particular accounting period?
I. The size of the asset
II. Method of depreciation used
III. Cost or revalued amount of asset
IV. Estimated residual value of asset
a. I, III and IV only
b. II, III and IV only
c. I, II, III and IV
d. I, II and III only
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
36. Baxter Ltd purchased equipment at the start of its first year of operation.
Cost (net of GST) $36 000
Residual $ 4 000
Estimated Useful Life 5 years
Under the straight-line method, the accumulated depreciation at the end of year 3 will be:
a. $19 200
b. $7 200
c. $6 400
d. $21 600
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: ($36 000 - $4000) x 3/5
37. Hightop's statement of financial position of 30 June2022 shows a motor vehicle at a cost price of $46 000 less accumulated depreciation of $17 500. Depreciation is calculated on a straight-line basis. If the vehicle had a useful life of 6 years at the time of purchase and a residual value of $4 000, its carrying amount on 1 July 2024 is:
a. $13 160
b. $14 500
c. $7 666
d. $17 500
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
@ Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: Annual depreciation = ($46 000 - $4 000) / 6 = $7 000 p.a.
Carrying amount = $ 46 000 - ($17 500 + $7000 + $7000) = $14 500
38. Mighty Models acquired a machine for $20 000 on 31 December 2022. Calculate depreciation for the year ended 31 December 2024 using the diminishing-balance method at 12% p.a. Assume a nil residual value.
a. $2000
b. $2112
c. $2400
d. $1800
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: $2112 = $20 000 - ($20 000 x 12%) x 12%.
39. On 1 January 2022, Panorama Ltd acquired equipment for $22 000, net of GST. The estimated residual value for the equipment is zero. Depreciation is calculated at 10% p.a. on the diminishing-balance basis. The depreciation expense for the year ended 31 December 2024 is:
a. $2200.
b. $1604.
c. $1980.
d. $1782.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: ($22 000 - [$2200 + $1980] × 10%)
40. The Delivery Vehicles account in the ledger of Transit Co. has a balance of $55 000 which is the cost of two second-hand trucks purchased on 1 July 2021. The Accumulated Depreciation - Delivery Vehicles account has a balance on 30 June 2024, before adjusting entries, of $20 000. No additional delivery trucks have been acquired or sold. The residual value of each truck is estimated to be $2500 and the straight-line depreciation method is used. What is the necessary adjusting entry to record annual depreciation on 30 June 2024?
a. DR Depreciation expense $10 000; CR Accumulated depreciation $10 000
b. DR Depreciation expense $5 000; CR Delivery vehicles $5 000
c. DR Accumulated depreciation $10 000; CR Delivery vehicles $10 000
d. DR Depreciation expense $5 000; CR Cash at bank $5 000
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: A balance of $20 000 in the accumulated depreciation account after 2 years means depreciation on the two trucks is $10 000 per annum.
41. On 31 December 2022 a new motor vehicle with a life of five years and no estimated residual value was purchased by a business at a cost of $48 000, net of GST. The diminishing-balance depreciation method is used at a rate of 20% p.a. What is the carrying value of the motor vehicle at 31 December 2024 after charging depreciation for that year?
a. $38 400
b. $9 600
c. $7 680
d. $30 720
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: $48 000 - ($48 000 x 20%) = $38 400 - ($38 400 x 20%) = $30 720
42. The correct statement concerning the diminishing-balance method of depreciation is:
a. It applies a declining percentage factor to the asset's original cost.
b. It is an appropriate method when proportionately more of the asset's benefits are consumed in the early years of its life.
c. It is also known as the units-of-production method.
d. It charges the same amount of depreciation each period.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
43. If the straight-line method of depreciation rather than the reducing-balance method is selected, in the early years of the asset's life the depreciation charge will be comparatively:
a. smaller.
b. cannot say.
c. the same.
d. greater.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
44. A retailer purchased a delivery van for $34 000 on 1 July 2022. It was planned to keep the vehicle until it had done 80 000 kilometres and then to trade it in. The expected trade in value was $6 000. A schedule of actual distance travelled was:
30/6/23 28 000 km
30/6/24 25 000 km
30/6/25 15 000 km
30/6/26 12 000 km
Using the units-of-production method the amount of depreciation charged for the year ended 30 June 2025 was:
a. $9800.
b. $5250.
c. $3500.
d. $4200.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: [$34 000 - $6000]/80 000 km = 35c per km. Depreciation charged for 2025 is 15 000 km × 35c per km.
45. A machine was purchased on 2 January 2022 for $70 000, net of GST. The machine had an estimated residual value of $12 000 and an estimated useful life of 6 years. Using the sum-of-the-years'-digits method and rounding to the nearest dollar, depreciation expense for the year ended 31 December 2023, is:
a. $16 667.
b. $20 000.
c. $16 571.
d. $13 810.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: ($70 000 - $12 000) × 5/21
46. Which of the following is not an advantage of the use of accelerated depreciation methods for tax purposes as opposed to the straight-line method?
a. For many assets, the combination of decreasing depreciation expense of the asset and increasing repairs and maintenance expense tends to equalise the total periodic expense of holding the asset.
b. Lower tax payments are made during the early years of the asset's life.
c. The total amount of tax paid over the lifetime of the asset is reduced.
d. The business has the interest-free use of deferred tax dollars until the later years of the asset's life.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
47. Wong purchased a computer for $15 000, net of GST. Originally it had an estimated useful life of 4 years and a residual value of $3000. The straight-line method is used. At the start of the third year of usage Wong revised the life of the computer to a total life of 6 years. The residual value had not changed. What depreciation expense should be recorded for the computer for year 3?
a. $4000
b. $1000
c. $1500
d. $3000
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: Depreciable amount at revision date/remaining useful life = $6000/4
48. An asset purchased for $120 000 with a zero residual value was expected to last for six years before it needed replacing. If, at the end of the fourth year, it was decided to extend the asset's total useful life by two years (new remaining life is now eight years), the new depreciation charge using the straight-line approach would be:
a. $12 000
b. $5 000
c. $20 000
d. $10 000
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
Feedback: Annual depreciation at beginning of asset's life = $120 000 / 6 = $20 000. The depreciable amount at the end of year 4 = $120 000 - (4 x $20 000) = $40 000. Remaining useful life is 4 years. New annual depreciation amount = $40 000 / 4 = $10 000
49. When an asset's estimated useful life and residual value turn out to be materially incorrect and the asset has not reached the end of its useful life, the correct procedure to follow is:
a. allocate the remaining depreciable amount over the remaining useful life.
b. re-issue corrected financial statements for all prior years.
c. ignore the problem since estimates are not expected to be exact anyway.
d. re-issue corrected financial statements for only the most recent three years.
General Feedback:
Learning objective 14.5: discuss the nature of depreciation and determine the amount of depreciation expense using several different cost allocation methods.
50. Under IAS 16/AASB 116, the cost of the annual service of a machine:
a. can be either written off as repairs and maintenance or added to the carrying amount of the machine.
b. should be capitalised and added to the carrying amount of the machine.
c. added to the original cost of the machine.
d. should be written off as repairs and maintenance.
General Feedback:
Learning objective 14.6: describe how to account for subsequent costs incurred in relation to property, plant and equipment
51. Which of the following are advantages of maintaining a subsidiary ledger for depreciable assets?
I. It provides information for the preparation of income tax returns.
II. It provides information concerning servicing of the assets.
III. It provides information for internal control over assets.
IV. It provides information to support insurance claims in the event of loss from theft or accident.
a. I, II, III and IV
b. I, II and IV only
c. II and IV only
d. I, II and III only
General Feedback:
Learning objective 14.6: describe how to account for subsequent costs incurred in relation to property, plant and equipment
52. If the cost of a major service on a motor vehicle, which did not increase the vehicles' useful life was incorrectly capitalised and added to the carrying amount of the vehicle rather than being expensed, expenses would be:
a. understated, fixed assets would be overstated and equity would be overstated
b. overstated, fixed assets would be overstated and equity would be understated.
c. understated, fixed assets would be understated and equity would be overstated.
d. understated, fixed assets would be overstated and equity would be understated.
General Feedback:
Learning objective 14.6: describe how to account for subsequent costs incurred in relation to property, plant and equipment
53. The cost of replacing the engine on a motor vehicle, which increased the vehicles' useful life by five years, was charged as an expense rather than being capitalised and added to the carrying amount of the vehicle. This error would result in profit being:
a. understated, fixed assets would be understated and equity would be understated.
b. understated, fixed assets would be understated and equity would be overstated.
c. overstated, fixed assets would be understated and equity would be understated.
d. overstated, fixed assets would be overstated and equity would be overstated.
General Feedback:
Learning objective 14.6: describe how to account for subsequent costs incurred in relation to property, plant and equipment
54. The correct statement concerning subsequent costs incurred in relation to a depreciable asset after its original acquisition is:
a. Subsequent costs should nearly always be capitalised rather than charged to an expense account.
b. The replacement of the tyres on a motor would add to the expected life of the vehicle.
c. If the subsequent cost of replacing part of an item of equipment is added to the carrying amount of that asset then the carrying amount of the part that is replaced must be decommissioned.
d. The painting of a building would normally be considered an improvement and capitalised.
General Feedback:
Learning objective 14.6: describe how to account for subsequent costs incurred in relation to property, plant and equipment
55. The cost of a major overhaul of equipment that extends its total useful life by five years would be:
a. added to the carrying amount of the asset causing future depreciation to be increased.
b. treated as an expense.
c. cause for an adjustment to prior years' depreciation on the equipment.
d. charged to a separate asset account and depreciated over five years.
General Feedback:
Learning objective 14.6: describe how to account for subsequent costs incurred in relation to property, plant and equipment
56. Which of the following should not to be recorded in the 'office equipment' ledger account?
a. Office curtains and carpets
b. Computers
c. Printer / Fax machine
d. Photocopier
General Feedback:
Learning objective 14.7: record property and plant records in the property and plant subsidiary ledger
57. For a clothing manufacturer which assets would be likely to be grouped together in a ledger account titled 'factory plant and equipment'?
I. Sewing machines
II. Cutting tables
III. Motor vehicles
IV. Office equipment
V. Buttonholer
a. iii, iv, v
b. i, ii, iii
c. ii, iii, iv
d. i, ii, v
General Feedback:
Learning objective 14.7: record property and plant records in the property and plant subsidiary ledger
58. A separate record that contains detailed information concerning individual assets is known as a(n):
a. asset control account.
b. stock card.
c. special journal.
d. fixed asset register.
General Feedback:
Learning objective 14.7: record property and plant records in the property and plant subsidiary ledger
59. How many of the following items of information about office equipment are required to be disclosed in the financial statements prepared for external reporting?
· Depreciation method used
· Aggregate cost of office equipment
· Aggregate Accumulated Depreciation of office equipment
· Depreciation rates used or useful lives of office equipment
· The total number of assets held in the office equipment grouping
a. 5
b. 4
c. 3
d. 2
General Feedback:
Learning objective 14.8: illustrate the reporting requirements for property, plant and equipment and depreciation in an entity's financial reports.
Feedback: The total number of assets held in the office equipment grouping is NOT required to be disclosed.
60. refers to the management function of planning and financing of capital investment.
a. Net present value analysis
b. Differential analysis
c. Analysis and interpretation
d. Capital budgeting
General Feedback:
Learning objective 14.9: analyse and interpret information on property, plant and equipment and appreciate the critical nature and importance of management decisions in relation to PPE.
61. The formula to calculate the asset turnover ratio is:
Learning objective 14.9: analyse and interpret information on property, plant and equipment and appreciate the critical nature and importance of management decisions in relation to PPE.
a. depreciation expense divided by average cost of assets.
b. average total assets divided by net sales.
c. average cost of assets divided by depreciation expense.
d. net sales divided by average total assets.
62. A reduction in the ratio net sales/average property, plant and equipment over time could mean:
a. there is an over-investment in plant and equipment.
b. the price of plant and equipment is falling.
c. the firm may be heading for a liquidity crisis.
d. there is an elevated level of inflation.
General Feedback:
Learning objective 14.9: analyse and interpret information on property, plant and equipment and appreciate the critical nature and importance of management decisions in relation to PPE.
63. When examining an external financial report, a ratio that can be useful in determining the approximate age of the assets is:
a. average total assets/net sales.
b. net sales/average total assets.
c. net sales/ average property, plant and equipment.
d. accumulated depreciation/average recorded property, plant and equipment at cost.
General Feedback:
Learning objective 14.9 - analyse and interpret information on property, plant and equipment and appreciate the critical nature and importance of management decisions in relation to PPE.
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Connected Book
Financial Accounting 11e | Test Bank with Answer Key by John Hoggett
By John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield