Multiple Choice - Quiz

(1st term) Assets other than goodwill that do not generate cash inflows independently from other assets and that contribute to the future cash flows of both the cash generating unit under review and other cash generating units (2nd term) The smallest identifiable group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows from other assets or group of assets

CORPORATE ASSETS CASH GENERATING UNIT

(1st term) Also known as revaluation increment, this is equal to the fair value or depreciated replacement cost (sound value) minus the carrying amount of the PPE (2nd term) Also known as the depreciated replacement cost, this is the replacement cost of the PPE minus the corresponding accumulated depreciation

REVALUATION SURPLUS SOUND VALUE

Which of the following statements is incorrect? a. When an asset's carrying amount is increased as a result of a revaluation, the increase shall be credited to revaluation surplus as component of other comprehensive income b. When an asset's carrying amount is decreased as a result of revaluation, the decrease shall be charged to retained earnings c. When the revaluation surplus is realized because of the use of the asset or disposal of the asset, it may be transferred directly to retained earnings d. If a depreciable property of an entity, which uses calendar year, is revalued at the middle of the current year, depreciation for the first half of the year is based on cost and for the second half on revalued amount e. Property, plant and equipment with significant and volatile changes in fair value necessitate annual revaluation f. A reversal decrease shall be charged directly against any revaluation surplus to the extent that the decrease in a reversal of a previous revaluation and the balance is charged to revaluation loss (expense)

When an asset's carrying amount is decreased as a result of revaluation, the decrease shall be charged to retained earnings

Which of the following will be most likely included in the line item, PPE in an entity's statement of financial position? a. Equipment for rental to others b. Land held for sale in the ordinary course of business c. Land and building for rental to others d. Bearer animals

a. Equipment for rental to others

Which of the following statements is true? a. An asset is depreciated even if the fair value exceeds carrying amount b. Land and building are not accounted for separately c. A noncurrent asset acquired as the result of an exchange is not recognized d. A gain on disposal is classified as revenue

a. An asset is depreciated even if the fair value exceeds carrying amount

An entity shall test an intangible asset with indefinite useful life for impairment a. Annually b. Every 5 years c. If there is an indication of impairment d. On acquistion of subsidiary

a. Annually

When impairment testing a cash generating unit, any corporate assets should a. Be allocated on a reasonable and consistent basis b. Be separately impairment tested c. Be included in the head office assets or parent assets and impairment tested along with that cash generating unit d. Not be allocated to cash generating units

a. Be allocated on a reasonable and consistent basis

Which of the following would ordinarily be treated as a revenue expenditure rather than a capital expenditure? a. Cost of servicing and overhaul to restore or maintain the originally assessed standard of performance b. The replacement of a major component of building c. An addition toan existing building d. Cost of improvement that is expected to provide discernible future benefit

a. Cost of servicing and overhaul to restore or maintain the originally assessed standard of performance

Consider the following statements: I. The carrrying amount of an item of PPE shall be derecognized on disposal or when no future economic benefits are expected from the use of disposal II. A property is said to be fully derecognized when the carrying amount is equal to zero or the carrying amount is equal to the residual value III. An entitiy may no longer continue to use an asset when it has been fully depreciated IV. The cost of fully depreciated asset ramining in service and the related accumulated depreciation ordinarily shall not be removed from the accounts Which of the above statements is/are incorrect? a. II and III b. III only c. III and IV d. I and IV e. None

a. II and III

When agricultural crops have been harvested or mineral ores have been extracted and a sale is assured under a forward contract or government guarantee, such inventories are measured at: a. Net realizable value b. Cost c. Standard cost d. Relative sales price

a. Net realizable value

Consider the following statements Statement 1: Capitalization of costs ceases when the PPE is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying PPE are not capitalized Statement 2: The cost of a self-constructed asset includes internal profits (i.e. savings on self-construction) and excludes the cost of abnormal amounts of wasted material, labor and other resources incurred in self-constructing the asset a. Only Statement 1 is correct b. Only Stament 2 is correct c. Both statements are correct d. Both statements are incorrect

a. Only Statement 1 is correct

The credit balance that arises when a loss on purchase commitment is recognized should be a. Presented as a current liability b. Subtracted from ending inventory c. Presented as either current or contingent liability d. Presented in the income statement

a. Presented as a current liability

LCNRV is best described as the a. Reporting of a loss when there is a decrease in the future utility below the original cost b. Method of determining cost of goods sold c. Assumption to determine inventory flow d. Change in inventory value to net realizable value

a. Reporting of a loss when there is a decrease in the future utility below the original cost

Which of the following is incorrect? a. The conventional retail method produces an ending inventory that approximates lower of cost and net realizable value b. Ending inventory cost is lower if net markups are included and net markdowns are excluded in computing the cost ratio c. Purchase return is included in the calculation of goods available for sale at both cost and retail d. Higher retail prices would cause a decrease in the cost ratio as used in the retail inventory method e. Normal shortage is deduceted from goods available for sale at retail, and is usually absorbed or included in cost of goods sold

a. The conventional retail method produces an ending inventory that approximates lower of cost and net realizable value

The straight line depreciation is not appropriate for a. An entity that is neither expanding nor cotnracting an investment in equipment depreciates b. Equipment on which repairs and maintenance increase substantially with age c. Equipment with useful life that is not affected by the amount of use d. Equipment used consistenltly every period

b. Equipment on which repairs and maintenance increase substantially with age

A private jet is expected to be used over a period of 7 years. The engine of the jet has a useful life of 5 years. The tires are replaced every 2 years. The private jet shall be depreciated using the straight line method over. a. 7 years composite useful life b. 5 years for the engine, 2 years for the tires, and 7 years applied to the balance cost of the jet c. 2 years based on conservatism d. 5 years based on a simple average

b. 5 years for the engine, 2 years for the tires, and 7 years applied to the balance cost of the jet

Which impairment loss should never be reversed? a. Loss on property, plant and equipment b. Loss on goodwill c. Loss on inventory d. None of the above

b. Loss on goodwill

An entity acquired equipment and used the straight line depreciation with a useful life of 15 years and no residual value. After 4 years of using the asset, the entity estimated that the remaining life of the equipment was six years with no residual value. How should this change be accounted for? a. Revising future depreciation annually to equal the original cost divided by six b. Revising future depreciation annual to equal the carrying amount after 4 years divided by six c. Disclosing the effect of the change one each years' earnings but maintaining the depreciation as originally determined d. Revising future depreciation annually to equal the depreciable amount divided by six

b. Revising future depreciation annual to equal the carrying amount after 4 years divided by six

Which of the following statements is the assumption on which straight line depreciation is based? a. The operating effeciency of the asset decreases in late years b. Service value declines as a function of time rather than use c. Service value declines as a function of obolecence rather than time d. Physical wear and tear are more important than economic obsolescence

b. Service value declines as a function of time rather than use

Which of the following is not relevant in determining vlue in use of an asset? a. The expected future cash flows from the asset b. The carrying amount of the asset c. Expectation about possible variation in the amount and timing of future cash flows d. The time value of money

b. The carrying amount of the asset

Which of the following statements is incorrect, with regard an impairment of asset? a. If impairment indicators are present, the entity must conduct an impairment test b. The impairment test compares the carrying amount with the lower of fair value less cost of disposal and value in use c. If the recoverable amount is lower that carrying amount, an impairment loss is recognized d. If recoverable amount is higher that carrying amount, no impairment loss is recognized

b. The impairment test compares the carrying amount with the lower of fair value less cost of disposal and value in use

The costing of inventory must be deferred until the end of reporting period under which of the following method of inventory valuation? a. Moving average b. Weighted average c. LIFO perpetual d. FIFO perpetual

b. Weighted average

Which of the following is CORRECT? a. The credit balance that arises when a loss on purchase commitment is recognized should be subtracted from ending inventory b. When the cost of goods sold method is used to record the inventory at net realizable value, the NRV for ending inventory is substituted for cost and the loss is buried in cost of goods sold c. LCNRV should always be equal to net realizable value which is the estimated selling price less estimated cost to complete and estimated cost of disposal d. Reversal of inventory writedown is prohibited

b. When the cost of goods sold method is used to record the inventory at net realizable value, the NRV for ending inventory is substituted for cost and the loss is buried in cost of goods sold

Which of the following is CORRECT? a. The cost of inventories does not include storage cost necessary in the production process before a further production stage. b. An entry debiting inventory and crediting cost of goods sold would be made when merchandise in returned and the periodic inventory method is used c. After a physcial inventory count, inventory is credited for any missing inventory, under the perpetual inventory method d. Land acquired for resale by a real estate firm as well as partially completed goods should not be reported as inventory

c. After a physcial inventory count, inventory is credited for any missing inventory, under the perpetual inventory method

If there is a change from double declining balance to straight line method a. The accumulated depreciation is adjusted to the appropriate balance through retained earnings based on the straight line method b. The accumulated depreciation is adjusted to the appropriated balance throguh net income based on the straight line method c. The accumulated depreciation is not adjusted but the remaining carrying amount is allocated over the remaining useful life using the straight line method d. The accumulated depreciation is not adjusted but the remaining carrying amount is allocated over the original useful life using the straight line method

c. The accumulated depreciation is not adjusted but the remaining carrying amount is allocated over the remaining useful life using the straight line method

Which of the following is incorrect? a. Thr gross profit method of inventory is not valid when the gross margin percentage changes significantly during the year compared to previous years b. The gross profit method is not valid to be used to estimate inventory for annual financial statements c. The use of the gross method assumes the amount of gross profit in the current year is the same as in prior years d. Inventory estimation is needed in the following cases: interim financial inventory, inventory destroyed by fire or typhoon e. If the gross profit rate is based on cost, the cost of sales is net sales divided by sales ratio; however, if the gross profit rate is based on sales, the cost of sales is net sales multiplied by cost ratio

c. The use of the gross method assumes the amount of gross profit in the current year is the same as in prior years

The estimates of future cash flows in calculating value in use include all of the following, except a. Cash inflows from the continuing use of the asset b. Cash outflows incurred to generate the cash inflows from the continuing use of the asset c. Net cash flows from the disposal of the asset at the end of useful life d. Income tax payments

d. Income tax payments

Which of the following is CORRECT? a. Freight and other handling charges incurrec in the transfer of goods from the consignee are inventoriable by the consignee b. Under the perpetual inventory method, purchase returns are recorded by deiting accounts payable and crediting purchase returns and allowances c. Shares and bonds held for resale by a brokerage firm should not be reported as inventory d. Goods in transit purchased FOB destination, goods received from another entity on consignment and goods in transit to a customer sold FOB shipping point should be exlcuded from inventory

d. Goods in transit purchased FOB destination, goods received from another entity on consignment and goods in transit to a customer sold FOB shipping point should be exlcuded from inventory

Statement I: In FAS (free alongside), the seller assumes all expenses in delivering the goods to the dock next to (alongside) the carrier on which the goods are to be shipped; the seller assumes loading and shipping costs; and the title passes upon shipment to the carrier Statement II. In FOB destination, the seller assumes all expense until the goods are unloaded from the carrier, at which time title passes to the buyer a. Only Statement I is correct b. Only Statement II is correct c. Both statements are correct d. Both statements are incorrect

d. Both statements are incorrect

Which of the following statements is incorrect with respect to depreciation? a. The depreciation method shall reflect the pattern in which the asset's economic benefits are consumed by the entity b. Depreciation of an asset begins when it is available for use when it is in the location and condition necessary for the intended use c. Depreciation ceases at the date the asset is classified as held for sale d. Depreciation is not recognized if the fair value of an asset exceeds carrying amount

d. Depreciation is not recognized if the fair value of an asset exceeds carrying amount

PAS 16 is entitled a. Land, Building, and Machinery b. Depreciation of, Property, Plant and Equipment c. Property, Plant and Equipment - Cost Model d. Property, Plant and Equipment e. Property, Plant and Equipment - Acquisition, Depreciation, Revaluation and Impairment

d. Property, Plant and Equipment

Which of the following is incorrect? a. An entity shall not classify as held for sale a noncurrent asset that is to be abandoned b. Temporary idle activity or abandonment does not preclude depreciating the asset since future benfits are consumed not only through usage, but also through wear and tear and obsolescnece c. Noncurrent asset to be abandoned includes an item of PPE that is to be used until the end of the economic life d. A noncurrent asset that is to be abandoned shall not be classified as held for sale because the carrying amount would be recovered principally through continuing use e. Incidental or intervening (which occur before or during the construction or development activities) are necessary to bring a PPE item to the location and condition for the intended use

e. Incidental or intervening (which occur before or during the construction or development activities) are necessary to bring a PPE item to the location and condition for the intended use