Australian-Financial-Accounting-7th-Edition

Australian-Financial-Accounting-7th-Edition

Chapter 06
Student: ___________________________________________________________________________
1. If an asset’s carrying amount is impaired, AASB 116 requires all assets in the same class to be revalued.

True False

2. If an asset is subject to depreciation or amortization there is no longer a need to test the asset for impairment.

True False

3. Depreciation method used and depreciation rates are required to be disclosed for taxation purposes.

True False

4. An entity that elects the revaluation model to measure a class of asset is permitted to revert back to the cost model provided that this will provide more relevant and reliable information.

True False

5. The revaluation model is a tool used by managers to reduce political costs.

True False

6. A sale of property plant and equipment requires the derecognition of the carrying amount of the asset and any cost of replacement part capitalised.

True False

7. Australia is the only country that allows upward revaluations of non-current assets.

True False

8. Recoverable amount is the amount expected to be recovered through the ongoing use and subsequent disposal of an asset.

True False

9. AASB 116 requires that where the replacement cost of a non-current asset is less than its carrying value, the asset should be written down to its replacement cost.

True False

10. The fair value of a non-current asset is defined in AASB 116 as the gross amount for which the asset can be sold when the entity is preparing to liquidate.

True False

11. Once an entity elects to value a class of assets using fair value it can switch back to cost basis measurement as long as there is justifiable reason.

True False

12. AASB 136 does not require the use of present values when determining the recoverable amount of an asset.

True False

13. The concept of conservatism requires that if a class of non-current assets is revalued a revaluation decrement should be treated as an expense of the period, whereas a revaluation increment should be treated as an increase in a reserve.

True False

14. The process of discounting future cash flows in calculating the recoverable amount of an asset will result in a higher recoverable amount than if the cash flows are not discounted.

True False

15. AASB 116 requires that revaluation increments and decrements must be offset recorded directly to equity and not be recorded as a gain or loss.

True False

16. Entities that elect to report plant and equipment at cost less accumulated depreciation are required to disclose a valuation of plant and equipment every 3 years in a note to the accounts.

True False

17. Positive Accounting Theory suggests that the revalution model is income increasing because the credit is asset revaluation reserve.

True False

18. AASB 116 requires entities to review at least at the end of each annual reporting period to assess if the fair value of the non-current assets has changed.

True False

19. AASB 116 requires that if it has been decided to revalue a class of non-current assets, the valuations must be kept up to date.

True False

20. AASB 138 will permit some intangible assets to be revalued upwards only when there is an ‘active market’ for the asset.

True False

21. A class of non-current assets as defined by AASB 116 is a category of non-current assets that:

A. were all purchased at the same time by the reporting entity.

B. all have a similar nature or function in the operations of the entity.

C. are disclosed as a single item without supplementary dissection in the financial report.

D. all have a similar nature or function in the operations of the entity, and are disclosed as a single item without supplementary dissection in the financial report.

22. By permitting some classes of assets to be valued at cost and others at fair value the AASB has:

A. removed any confusion regarding the total balance of non-current assets.

B. forced entities to accurately reflect their true financial position at any point in time.

C. created a situation where the total asset figure may be a combination of cost and fair value assessments, reducing its meaningfulness.

D. removed the opportunity for managers to act in their own self-interest as suggested by Positive Accounting Theory.

23. Purple Co Ltd purchased an item of land 3 years ago at a cost of $700 000. Two years ago the recoverable value of the land was considered to be $550 000. In the current period the land is revalued and the fair value is now $750 000. What is the treatment of the change in value in each of the periods?

A. Two years ago: a loss of $150 000 is recognised. The current period: a gain of $150 000 and an increase in the asset revaluation reserve of $50 000 is recognised.

B. Two years ago: $150 000 is debited to the asset revaluation reserve. The current period: $200 000 is credited to the asset revaluation reserve.

C. Two years ago: $150 000 is expensed in the period. The current period: $200 000 is transferred to the asset revaluation reserve.

D. Two years ago: $150 000 is written off to the asset revaluation reserve. The current period: $200 000 revenue is recognised.

24. Where an asset’s carrying amount based on its cost is written down to its recoverable amount, AASB 136 specifies that:

A. Since this constitutes a revaluation of the asset, all assets in that class must be revalued.

B. The amount written down is to be treated as an adjustment to the asset revaluation reserve.

C. The write-down is not considered to be a revaluation and so the entity is not obliged to revalue that whole class of non-current assets.

D. To the extent that the asset was revalued upward in the past, the amount of the write-off may be transferred to the asset revaluation reserve and any remaining amount should be expensed.

25. AASB 136 requires that:

A. If a non-current asset is revalued, the revalued amount may be less than the recoverable amount.

B. If a non-current asset is revalued, it must be revalued to the lower of current replacement cost or net realisable value.

C. If a non-current asset is revalued, it must be revalued to the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

D. If a non-current asset is revalued, it must be revalued to the amount for which the asset could be realised in an active market in a liquidation sale.

26. AASB 116 provides guidance on fair values which states:

A. Where an active and liquid market exists for an asset, the market price represents evidence of the asset’s fair value.

B. Fair values are determined on the basis that an entity is a going concern.

C. Where no market exists the price should be based on the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

D. All of the given answers are correct.