F3 (C7-22)

What is the purpose of charging depreciation in financial statements?

• To allocate the cost of a non-current asset over the accounting periods expected to benefit from its use

• To ensure that funds are available for the eventual replacement of the asset

• To reduce the cost of the asset in the statement of financial position to its estimated market value

• To account for the ‘wearing-out’ of the asset over its life

Which of the statements below correctly states the purpose of the asset register?

• An internal control to ensure details of all assets are readily available in the event of loss or theft

• To ensure the organisation is aware of the age of plant and machinery

• An internal control to ensure information relating to non-current assets in the nominal ledger and the financial statements is correct

• To enable the organisation to comply with IAS 16 Property, plant and equipment

An asset register showed a carrying amount of $67,460. A non-current asset costing $15,000 had been sold for $4,000, making a loss on disposal of $1,250. No entries had been made in the asset register for this disposal. What is the correct balance on the asset register?

• 42,710

• 51,210

• 53,710

• 62,210

Which one of the following would occur if the purchase of computer stationary was debited to the computer equipment at cost account?

• An overstatement of profit and an overstatement of non-current assets

• An understatement of profit and an overstatement of non-current assets

• An overstatement of profit and an understatement of non-current assets

• An understatement of profit and an understatement of non-current assets

Which one of the following statements correctly defines non-current assets?

• Assets that are held for use in the production of goods or services and are expected to be used during more than one accounting period

• Assets which are intended to be used by the business on a continuing basis, including both tangible and intangible assets that do not meet the IASB definition of a current asset

• Non-monetary assets without physical substance that are controlled by the entity and from which future benefits are expected to flow

• Assets in the form of materials or supplies to be consumed in the production process (

A company bought a property four years ago on 1 January for $ 170,000. Since then property prices have risen substantially and the property has been revalued at $210,000. The property was estimated as having a useful life of 20 years when it was purchased. What is the balance on the revaluation surplus reported in the statement of financial position?

• 210,000

• 136,000

• 74,000

• 34,000

A business purchased a motor car on 1 July 20X3 for $20,000. It is to be depreciated at 20 per cent per year on the straight line basis, assuming a residual value at the end of five years of $4,000, with a proportionate depreciation charge in the years of purchase and disposal.

The $20,000 cost was correctly entered in the cash book but posted to the debit of the motor vehicles repairs account. How will the business profit for the year ended 31 December 20X3 be affected by the error?

• Understated by $18,400

• Understated by $16,800

• Overstated by $18,400

• Overstated by $16,800 (2 marks)

Which of the following statements are correct?

1 IAS 16 Property, plant and equipment requires entities to disclose the purchase date of each asset.

2 The carrying amount of a non-current asset is the cost or valuation of that asset less accumulated depreciation.

3 IAS 16 Property, plant and equipment permits entities to make a transfer from the revaluation surplus to retained earnings for excess depreciation on revalued assets.

4 Once decided, the useful life of a non-current asset should not be changed.

• 1, 2 and 3

• 2 and 3

• 2 and 4

• 1, 2 and 4

Which of the following should be disclosed for tangible non-current assets according to IAS 16 Property, plant and equipment?

1 Depreciation methods used and the total depreciation allocated for the period

2 A reconciliation of the carrying amount of non-current assets at the beginning and end of the period

3 For revalued assets, whether an independent valuer was involved in the valuation

4 For revalued assets, the effective date of the revaluation

• 1, 2 and 4

• 1 and 2

• 1,2,3 and 4

• 1, 3 and 4

Which of the following should be included in the reconciliation of the carrying amount of tangible noncurrent assets at the beginning and end of the accounting period?

1 Additions

2 Disposals

3 Depreciation

4 Increases/decreases from revaluations

• 1 and 3

• 1, 2 and 3

• 1, 3 and 4

• 1, 2, 3 and 4