Revaluation and Disposal | Test Bank – Non-Current Assets 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 15: Non-current assets: revaluation, disposal and other aspects
Multiple-choice questions
1. What is the basic accounting entry for an initial revaluation decrease of a non-depreciable asset?
a. DR asset; CR revaluation surplus reserve
b. DR expense on revaluation of asset; CR asset
c. DR revaluation surplus reserve; CR asset
d. DR asset; CR expense on the revaluation of asset
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
2. Accounting standard IAS 16/AASB 116, Property, Plant and Equipment:
a. does not require an entity to revalue its assets.
b. requires all assets to be revalued yearly.
c. requires all assets to be revalued every five years.
d. requires all assets to be revalued every three years.
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
3. Which of the following terms have the same meaning in accounting?
I. Book value
II. Carrying amount
III. Written down value
a. I and III
b. I and II
c. II and III
d. I, II and III
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
4. The carrying amount of a depreciable, non-current asset is its:
a. net realisable value.
b. cost or revalued amount less accumulated depreciation.
c. historic cost.
d. cost less residual amount.
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
5. If assets are to be valued at other than cost, accounting standard IAS 16/AASB 116, Property, Plant and Equipment, requires what basis of valuation to be used?
a. No basis of valuation is specified
b. Market value
c. Fair value
d. The lower of cost and net realisable value
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
6. Under the accounting standard dealing with revaluations, IAS 16/AASB 116, an entity is required to:
a. adopt either a cost model or a revaluation model.
b. revalue its assets
c. adopt a cost model.
d. adopt a revaluation model.
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
7. Which of the following are requirements of IAS 16/AASB 116?
I. An entire class of non-current assets must be revalued together.
II. If the revaluation model is adopted non-current assets should be revalued to either fair value or the value in use.
III. Before a depreciable asset is revalued accumulated depreciation should be written back to the asset account.
a. I and III only
b. II and III only
c. None of the other options
d. I, II and III only
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
8. Any revaluations that occur must be upward or downward from an asset's:
a. carrying amount.
b. lower of cost and net realisable value.
c. net realisable value.
d. original cost.
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
9. Which of the following is the basic accounting entry for a revaluation decrease of a non-depreciable asset that is not a reversal of an original increase?
a. DR Expense on revaluation of asset; CR Asset
b. DR Asset; CR Revaluation surplus reserve
c. DR Asset; CR Expense on the revaluation of asset
d. DR Revaluation surplus reserve; CR Asset
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
10. High Tide Ltd's statement of financial position at 30 June 2023 disclosed the following.
On 1 July 2023 the director of High Tide decided to revalue the buildings to a fair value of $400 000. The general journal entry to record the revaluation is:
a. DR Accumulated depreciation buildings $280 000; CR Loss on revaluation $30 000; CR Buildings $250 000
b. DR Gain on revaluation $30 000; CR Buildings $30 000
c. DR Accumulated depreciation buildings $30 000; CR Gain on revaluation $30 000
d. DR Accumulated depreciation buildings $280 000; CR Gain on revaluation $30 000; CR Buildings $250 000
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
11. Mackenzie Ltd's fleet of delivery trucks (original cost $850 000) had a carrying amount on 1 July 2023 of $470 000. On that date, their value was revised to $500 000. Future depreciation charges will be based on which amount?
a. $450 000
b. $470 000
c. $330 000
d. $500 000
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
12. In accounting standard IAS 16/AASB 116, a downward revaluation is now known as a:
a. revaluation depletion.
b. revaluation decrease.
c. revaluation increment.
d. revaluation decrement.
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
13. What type of account is a revaluation surplus?
a. Equity
b. Liability
c. Asset
d. Income
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
14. Which statement concerning revaluations that reverse prior adjustments in value is untrue?
a. A revaluation increase that reverses a previous decrease should be recognised in the statement of financial performance. To the extent that it reverses any previously downward revaluation of the same asset.
b. When a change in valuation is a reversal of a previous revaluation, accumulated depreciation does not have to be written off against the asset before the revaluation is recorded.
c. A revaluation decrease that reverses a previous increase should be recognised as a decrease in other comprehensive income to the extent of any credit balance existing in the revaluation surplus reserve account
d. A debit to a revaluation surplus reserve account that is a reversal of a previous revaluation increase should not exceed the amount of the original credit.
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
15. Which of the following statements is correct?
a. An initial revaluation decrease should be treated as a debit to the revaluation surplus reserve.
b. An initial revaluation decrease should be treated as a debit against the current period's profit or loss.
c. A revaluation decrease should occur if a non-current asset's carrying amount is less than its fair value.
d. An initial revaluation decrease should be disclosed in the profit report as a reduction in other comprehensive income.
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
16. The statement of financial position of Toby Ltd at 31 December 2023 shows the following.
On 1 January 2024, based on a valuer's estimate of fair value, it was decided to revalue the plant to $70 000. This was the first time the asset had been revalued.
The journal entry to record the revaluation is which of the following?
a. 
b. 
c. 
d. 
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
17. The statement of financial position of Toby Ltd at 31 December 2023 shows the following.
On 1 January 2024, based on a valuer's estimate of fair value, it was decided to revalue the plant to $70 000. This was the first time the asset had been revalued. The plant was then assessed to have a further useful life of 5 years and an expected residual amount of $10 000.
What is the journal entry in the books of Toby Ltd to record depreciation on plant on a straight-line basis for the half-year ending 30 June 2024 (balance date)?
a. DR Depreciation expense - plant 6 000
CR Accumulated depreciation - plant 6 000
b. DR Depreciation expense - plant 14 000
CR Accumulated depreciation- plant 14 000
c. DR Accumulated depreciation - plant 6 000
CR Depreciation expense - plant 6 000
d. DR Depreciation expense - plant 12 000
CR Accumulated depreciation- plant 12 000
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
Feedback: ($70 000 - $10 000)/5 × ½
18. Which statement relating to revaluations of non-current assets is incorrect?
a. Future depreciation charges will be based on the revalued carrying amount of the asset.
b. A revaluation decrease should be included as a reduction in profit.
c. A revaluation increase is regarded as income to be added to the firm's profit for the year.
d. Before assets are revalued any existing accumulated depreciation must be written off against the asset account.
General Feedback:
Learning objective 15.1: account for the revaluation of non-current assets, both upwards and downwards.
19. What is the name given to the higher of an asset's fair value less costs to sell, and its value in use?
a. carrying amount
b. fair value amount
c. written down value
d. recoverable amount
General Feedback:
Learning objective 15.2: account for the write-down of an impaired non-current asset to recoverable amount.
20. Under IAS 36/AASB 136 Impairment of Assets, which of the following statements are true?
I. When an asset's carrying amount is less than its recoverable amount the asset is said to suffer impairment.
II. Impairment losses are accounted for as a revaluation decrease if the revaluation model is used.
III. Impairment losses must be recognised as an expense in that period if the cost model is used.
a. I, II and III
b. I and III only
c. None of the other options
d. II and III only
General Feedback:
Learning objective 15.2: account for the write-down of an impaired non-current asset to recoverable amount.
Feedback: Not the first.
21. On 31 December 2022 Fraser Ltd's statement of financial position shows motor vehicles at a cost price of $400 000 less accumulated depreciation $100 000. Fraser Ltd uses the cost model to value its assets. On 31 December 2022 an estimate is made that the recoverable amount of the vehicles is $270 000. Under IAS 36/AASB 136, Impairment of Assets, the accounting entry to record the write down of the motor vehicles to recoverable amount is which of the following?
a. DR Impairment loss on motor vehicles (expense) $30 000; CR Accumulated depreciation and impairment losses $30 000
b. No entry is required
c. DR Impairment loss on motor vehicles (expense) $30 000; CR Motor vehicles $30 000
d. DR Impairment loss on motor vehicles (expense) $130 000; CR Accumulated depreciation $130 000
General Feedback:
Learning objective 15.2: account for the write-down of an impaired non-current asset to recoverable amount.
23. The gain or loss on disposal of a non-current asset is calculated as the difference between:
a. selling price and carrying amount.
b. fair value and selling price.
c. fair market value and accumulated depreciation.
d. replacement value and selling price.
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
24. When an asset is sold, the gain or loss on disposal is the difference between the:
a. proceeds of sale and the fair value of the asset.
b. proceeds of sale and the carrying amount of the asset.
c. original cost and the accumulated depreciation of the asset.
d. proceeds of sale and the original cost of the asset.
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
25. On 31 December 2023 an item of machinery had a cost of $300 000 and accumulated depreciation of $280 000. If the machinery was sold for a profit of $30 000 on 1 January 2024, how much was recorded as income from the proceeds of the sale?
a. $50 000
b. Nil
c. $300 000
d. $20 000
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
Feedback: ($300 000 - $280 000) + $30 000.
26. Proceeds from the sale of equipment is a/an account.
a. liability
b. negative asset
c. expense
d. income
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
27. Equipment which had a carrying amount at the end of the financial year 2022/23 of $18 000, was disposed of on 1 October 2023 Depreciation was calculated on the equipment at 20% per annum using the diminishing-balance method. What was the depreciation expense charged for the first 3 months of the financial year 2023/24, before the asset was sold?
a. $0
b. $900
c. $1800
d. $3600
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
Feedback: $900 = $18 000 x 20% x 3/12.
28. What type of account is the Carrying Amount of Equipment account?
a. Expense
b. Negative expense
c. Negative asset
d. Asset
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
29. On 31 December 2023, a machine with a cost of $150 000 has accumulated depreciation written off of $90 000. If the machine was sold for $80 000 on 1 January 2024 how much will be recognised to the account "Carrying amount on the disposal of machinery"?
a. $90 000
b. $80 000
c. $150 000
d. $60 000
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
Feedback: $60 000 = $150 000 - $90 000
30. Assume that a machine with a cost of $90 000 has accumulated depreciation of $48 000 on the date of its disposal. What is the profit or loss on disposal of the old machine if it was traded-in for $40 000 on a new machine? (Ignore GST.)
a. $42 000 loss
b. $40 000 loss
c. $2 000 loss
d. $8 000 gain
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
Feedback: $40 000 - $42 000
31. Which of the following statements is incorrect?
a. If an asset is scrapped as worthless before it is fully depreciated its original cost represents an expense on disposal.
b. If an asset is scrapped as worthless before it is fully depreciated its carrying amount represents an expense on disposal.
c. An amount paid to remove an asset that is scrapped before it is fully depreciated is an addition to the expense recorded on its disposal.
d. When an asset is scrapped during the year an entry should be made to record depreciation expense for the portion of the year before scrapping.
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
32. Bronwyn's Computer Shop purchased some new equipment by trading in old equipment with a carrying amount of $10 000. Cash of $8 000 was paid to the supplier and a trade-in allowance of $7 000 was granted. The new equipment should be recorded at:
a. $15 000.
b. $7 000.
c. $8 000.
d. $10 000.
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
33. On 31 May2022 a photocopying machine with a cost of $12 000 has accumulated depreciation written off of $10 000. If the machine is sold for $1 500 on 1 June 2022 what will be the net effect of the sale on the statement of financial performance?
a. $500 profit
b. $1 500 profit
c. $500 loss
d. $1 500 loss
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
34. If a computer with a fully depreciated cost of $10 000 is discarded as worthless, the correct accounting entry to record the scrapping is:
a. DR Accumulated depreciation computer $10 000; CR Computer $10 000
b. DR Expense on disposal of asset $10 000; CR Proceeds of disposal of asset $10 000
c. DR Expense on disposal of asset $10 000; CR Accumulated depreciation computer $10 000
d. DR Expense on disposal of asset $10 000; CR Computer $10 000
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
35. The statement of financial position of Foster Ltd at 31 December 2023 showed:
On 1 January 2024 the equipment was sold for $18 000. What is the accounting entry to record the receipt of the proceeds from the sale of the equipment?
a. DR Bank $16 000; CR Proceeds from sale of equipment $16 000
b. DR Bank $18 000; CR Equipment $18 000
c. DR Bank $2000; CR Proceeds from sale of equipment $2000
d. DR Bank $18 000; CR Proceeds from sale of equipment $18 000
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
36. The statement of financial position of Fullwood Ltd at 31 December 2022 showed:
On 1 January 2023 the equipment was sold for $13 000. The accounting entry to record the closing of the equipment and the accumulated depreciation of equipment accounts is:
a. DR Bank $13 000; CR Carrying amount of equipment $13 000
b. DR Accumulated depreciation equipment $10 000; CR Equipment $10 000
c. DR Accumulated depreciation equipment $30 000; CR Equipment $30 000
d. DR Accumulated depreciation equipment $30 000; DR Carrying amount of equipment $10 000; CR Equipment $40 000
General Feedback:
Learning objective 15.3: account for the derecognition of non-current assets by scrapping, by sale, or by exchange.
37. Which of the following statements relating to the composite rate depreciation approach are correct?
I. The general asset mix of a functional group of assets is assumed to be the same through new assets are added and old assets are sold.
II. Additions and retirements are assumed to occur uniformly throughout the year.
III. The method is often used by business entities with many similar assets in one class.
IV. Profits and losses on disposal of assets are debited/credited to the accumulated depreciation account so no losses or profits on disposal are recorded.
a. I, II, III and IV
b. I and IV only
c. II, III and IV only
d. I, III and IV only
General Feedback:
Learning objective 15.4: account for depreciation using composite rates.
38. Scot Ltd uses a composite-rate depreciation rate of 8% p. A. for its office equipment. The office equipment account had a balance of $15 000 at the beginning of the period and a balance of $28 000 at the end of the accounting period. The annual depreciation charge for the period is:
a. $1 720
b. $1 200
c. $2 240
d. $1 040
General Feedback:
Learning objective 15.4: account for depreciation using composite rates.
Feedback: ($15 000 + $28 000)/2 × 8%
39. Which of the following pairs of terms match?
I. Non-current fixed assets and depreciation
II. Natural resources and amortisation
III. Intangible assets and depletion
IV. Land and depreciation
a. i, ii, iii, iv
b. i, ii, iv
c. ii, iii
d. I
General Feedback:
Learning objective 15.4: account for depreciation using composite rates.
40. Which statement relating to the composite-rate depreciation approach is not true?
a. It is often used in practice by business entities with many similar assets in the one class.
b. It is only used for items valued at less than $1000 each.
c. A single depreciation rate is applied to the average cost of a functional group of assets.
d. The composite rate is applied to the average of the beginning and ending balances in the asset account for the year.
General Feedback:
Learning objective 15.4: account for depreciation using composite rates.
41. Which of the following statements relating to the composite-rate depreciation approach is not correct?
a. It is often used in practice by business entities with many similar assets in the one class.
b. A single average depreciation rate is applied to the average of the beginning and ending balances of a functional group of assets.
c. No gain or loss is recognised on the disposal of individual assets within the composite group.
d. Composite-rate depreciation always uses the straight-line method of depreciation.
General Feedback:
Learning objective 15.4: account for depreciation using composite rates.
42. A coal mine was purchased for $900 000. Estimated production is 20 000 000 tons of coal after which the mine will be sold for $50 000. During the current year 5 500 000 tons of coal were produced and sold. Amortisation for the year is:
a. $233 750
b. $212 500
c. $247 500
d. $139 091
General Feedback:
Learning objective 15.5: describe the accounting for the acquisition and depletion of mineral resources.
Feedback: ($900 000 - $50 000) × (5 500 000/20 000 000)
43. Which statement relating to mineral resources is not true?
a. The most common approach to the calculation of the depletion of mineral resources is the reducing-balance method.
b. Accounting for mineral resources is governed by IAS 16/AASB 116.
c. As the mineral resource asset is used up its cost is proportionately transferred to an amortisation (depletion) expense account.
d. The cost at which mineral resources are recorded may include amounts spent on exploration and development.
General Feedback:
Learning objective 15.5: describe the accounting for the acquisition and depletion of mineral resources.
44. Which of the following are mineral resources?
I. Oil
II. Coal
III. Natural gas
IV. Uranium
a. I, II and III only
b. I and III only
c. II and III only
d. I, II, III and IV
General Feedback:
Learning objective 15.5: describe the accounting for the acquisition and depletion of mineral resources.
45. Which pairing of non-current assets and acquisition value does not match?
a. Biological assets and agricultural produce and cost.
b. Mineral resources and cost.
c. Goodwill and cost of the business combination less the sum of the fair values of the net assets acquired.
d. Identifiable intangible assets and cost.
General Feedback:
Learning objective 15.6: describe the nature of biological assets and agricultural produce and how to account for them.
46. Which of the following are not examples of biological assets?
a. Trees in an avocado plantation, coffee bushes on a coffee plantation
b. Cattle and sheep
c. Wine and wool
d. Planted wheat and grape vines
General Feedback:
Learning objective 15.6: describe the nature of biological assets and agricultural produce and how to account for them.
Feedback: Wine and wool are examples of agricultural produce as they are not living.
47. Under IAS 41/AASB 141 the basis for measuring biological assets is:
a. fair value less costs to sell.
b. estimated market value less costs to sell.
c. historical cost less costs to sell.
d. replacement value.
General Feedback:
Learning objective 15.6: describe the nature of biological assets and agricultural produce and how to account for them.
48. Under IAS 41/AASB 141, biological assets are recorded in the accounting records based on their:
a. replacement value.
b. market value.
c. net fair value.
d. historical cost.
General Feedback:
Learning objective 15.6: describe the nature of biological assets and agricultural produce and how to account for them.
49. According to IAS 38/AASB 138 intangible assets that have been established to have finite useful lives:
a. should be amortised on a systematic basis over their useful lives
b. should not be amortised but tested each year for impairment.
c. should be amortised over a period not exceeding 10 years.
d. amortised over their legal lives.
General Feedback:
Learning objective 15.7: describe the nature of intangible assets and the problems of accounting for them.
50. The correct accounting entry to amortise an intangible asset over its useful life is:
a. DR Accumulated amortisation; CR Amortisation of asset
b. DR Amortisation expense; CR Accumulated amortisation
c. DR Amortisation expense; CR Accumulated depreciation
d. DR Amortisation expense; CR Asset
General Feedback:
Learning objective 15.7: describe the nature of intangible assets and the problems of accounting for them.
51. Which of the following is not an example of an intangible asset?
I. Trademark
II. Goodwill
III. Licences
IV. Oil and gas reserves
a. II and III only
b. IV only
c. I, II and IV only
d. III only
General Feedback:
Learning objective 15.7: describe the nature of intangible assets and the problems of accounting for them.
52. Intangible assets may be further classified as:
a. identifiable and unidentifiable.
b. living and non-living.
c. physical and non-physical.
d. production and non-production
General Feedback:
Learning objective 15.7: describe the nature of intangible assets and the problems of accounting for them.
53. Under IAS 38/AASB 138, which statement concerning internally generated intangible assets is incorrect?
a. The tests for recognising internally generated intangibles are more stringent than for recognising internally generated property, plant and equipment.
b. They can only be recognised if their cost can be measured reliably.
c. If patents and copyrights are deemed to be in the research phase all expenditure incurred should be expensed rather than capitalised.
d. It is likely that the cost of internally generated brand names, mastheads and customer lists can be measured reliably
General Feedback:
Learning objective 15.7: describe the nature of intangible assets and the problems of accounting for them.
54. Which statement concerning the accounting treatment of intangible assets under IAS 38/AASB 138 is correct?
a. IAS 38/AASB 138 accepts the view that some intangible assets have unlimited lives and therefore should not be amortised.
b. An intangible asset is defined as an asset without physical substance.
c. Goodwill can be purchased or sold as a separate asset.
d. Any internally generated trademark or brand name can be recognised as an asset.
General Feedback:
Learning objective 15.7: describe the nature of intangible assets and the problems of accounting for them.
55. Which of the following statements concerning patents is correct?
a. A patent in Australia gives the holder the exclusive right to produce and sell a particular product for a period of 50 years.
b. A patent that is purchased from its holder is debited to an asset account and must be amortised over a maximum period of 15 years.
c. A patent that has been capitalised is shown in the statement of financial position on one line at its net value.
d. Research costs spent on internal patent development cannot be recognised as an asset under
General Feedback:
Learning objective 15.7: describe the nature of intangible assets and the problems of accounting for them.
56. IAS 38/AASB 138. 57. The excess of the purchase price of a business over the fair values of the identifiable net assets acquired is a measure of:
a. purchased goodwill.
b. net fair value.
c. profit.
d. revaluation
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
57. White Ltd acquired the net assets of Knight Ltd for $240 000. At the date of purchase, the fair values of the net assets acquired were:
The value of purchased goodwill recorded by White Ltd is:
a. $40 000.
b. $0.
c. $15 000.
d. $10 000.
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
Feedback: $10 000 = Purchase price minus fair value of net assets acquired = $240 000 - $225 000 ($190 000 + $65 000 - $25 000).
58. IFRS 3/AASB 3 requires that, if the amount paid for a business is less than the sum of the fair value of the net identifiable assets acquired, and this is a genuine bargain purchase, then the difference is to be:
a. recognised immediately as a gain in the statement of financial performance.
b. taken directly to an equity account.
c. used to reduce the value of the monetary assets acquired.
d. offset against any goodwill previously acquired.
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
59. Which of the following statements about goodwill is correct?
a. Goodwill arises from many factors, such as customer confidence, superior management and a favourable location.
b. Goodwill is classified as a current asset.
c. Goodwill can be purchased or sold as a separate item.
d. Under IFRS 3/AASB 3 goodwill must be amortised.
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
60. On 1 June 2023, Goodwin Limited acquired the business of Monty Inc. for $280 000. The carrying amount of Monty Inc's net assets at the time of the acquisition was $215 000 while independent valuers calculated their fair value at $250 000. Goodwin Limited should debit 'Goodwill' for the amount of:
a. $30 000.
b. $65 000.
c. $35 000.
d. $0.
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
Feedback: $280 000 - $250 000
61. Which of the following does not contribute to the value of purchased goodwill?
a. A franchise
b. Manufacturing efficiency
c. Good employee relations
d. Customer confidence
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
62. Cobra Ltd acquired the business of Rattle Ltd for a cash payment of $820 000. The carrying amount of Rattle Ltd's assets at the time of purchase was $690 000 while the independent fair value was $760 000. There were no liabilities. What is the value of the purchased goodwill recorded by Cobra Ltd?
a. $130 000
b. $0
c. $70 000
d. $60 000
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
Feedback: $820 000 - $760 000
63. According to IFRS 3/AASB 3 purchased goodwill:
a. should be written off immediately on recognition.
b. should be written off by a systematic charge against profits using the straight-line method, over a period not exceeding 20 years.
c. should be written off over the useful life of the asset.
d. should remain in the accounts at cost less any accumulated impairment losses.
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
64. Goodwill is defined in IFRS 3/AASB 3 Business Combinations as:
a. an asset having no physical substance.
b. an asset not specifically brought to account.
c. the benefits of a favourable customer relations.
d. future economic benefits arising from assets that are not capable of being individually identified and separately recognised.
General Feedback:
Learning objective 15.8: describe the nature of goodwill and how to account for goodwill acquired by an entity
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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