IFRS Are we good to go - 1st Week - IAS 16

Which statement is FALSE?

• PPE is recognised initially at cost

• Depreciation is a measure of the loss of value

• Revenue-based depreciation method is allowed under IAS 16

• Depreciation is a measure of consumption

Foster has built a new factory incurring the following costs:

Land : 1,200

Materials: 2,400

Labour: 3,000

Architect's fees : 25

Surveyor's fees : 15

Site overheads : 300

Apportioned administrative overheads : 150

Testing of fire alarms : 10

Corporate income tax for first year: 12

Total expenses is 7,112

• 6,112

• 6,950

• 7,112

• 7,100

Which statement is TRUE?

• PPE can be revalued only if there is an active market

• Component accounting is an accounting policy choice

• Staff training can be capitalised as part of the cost of an asset

• Component accounting is mandatory if material

Wetherby purchased a machine on 1 July 20X7 for $500,000. It is being depreciated on a straight line basis over its expected life of ten years. Residual value is estimated at $20,000. On 1 January 20X8, following a change in legislation, Wetherby fitted a safety guard to the machine. The safety guard cost $25,000 and has a useful life of five years with no residual value. What amount will be charged to profit or loss for the year ended 31 March 20X8 in respect of depreciation on this machine?

• 37,250

• 36,000

• 50,000

• 48,000

An aircraft requires a planned overhaul each year at a cost of $5,000. This is a condition of being allowed to fly. How should the cost of the overhaul be treated in the financial statements?

• Accrued for over the year and charged to maintenance expenses

• Provided for in advance and charged to maintenance expenses

• Capitalised and depreciated over the period to the next overhaul

• Charged to profit or loss when the expenditure takes place

Residual value is specially:

• Net amount which the entity expects to obtain for an asset at the end of its useful life

• Gross amount which the entity expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal

• Gross amount which the entity expects to obtain for an asset at the end of its useful life

• Net amount which the entity expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal

Lancer Co. constructs a machine for its own use. Construction was started on 1 January 2008 and was completed on 15 March 2008. The machine was installed on 1 May 2008 and the entity started using the machine on 1 July 2008. When should Lancer Co. begin charging depreciation?

• 1 January 2008

• 15 March 2008

• 1 May 2008

• 1 July 2008

An asset was purchased on 1 January 20X3 for $400,000. On that date it was assessed to have a residual value of $40,000 and a useful economic life of 9 years. On 1 January 20X6 management (3 years later) assessed that the remaining useful economic life of the asset was 8 years and that the asset had a residual value of nil. What is the depreciation charge for this asset in the year ended 31 December 20X6?

• 30,000

• 35,000

• 40,000

• 25,000

Savana Co. has elected to use the revaluation model for their machinery. They depreciate their molding machine using the straight-line method. The asset was revalued after 3 years of use, which resulted in an increased value. There was no change in the remaining useful life of the machine or to the residual value. Based on these facts, which of the relationships below reflects the effect of the revaluation on Savana’s prospective depreciation of the asset?

• Depreciation period: Same

  Annual Depreciation expense: Higher

• Depreciation period: Same

  Annual Depreciation expense: Same

• Depreciation period: Higher

  Annual Depreciation expense: Higher

• Depreciation period: Higher

  Annual Depreciation expense: Same

GHI's financial statements for the year ended 31 December 20X7 show a balance for indefinite land and buildings of $750,000.This represents cost of $1,000,000 (which includes $600,000 for land) and accumulated deprecation of $250,000. Depreciation is to be charged on buildings at 2% a year on a straight line basis.There have been no additions and disposals of land and buildings during the year. 'What is the carrying value of land and buildings to be included in GHI's statement of financial position at 31 December 20X8?

• 750,000

• 742,000

• 730,000

• 758,000