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WorksheetsInterim Mock Ch-7 to Ch-9
Total questions: 50
Worksheet time: 1hrs 8mins
A company is preparing its statement of cash flows for the year ended 31st March 2012. Relevant extracts from the accounts are as follows.
Statement of profit or loss $
Depreciation - 15,000
Profit on sale of non-current assets - 40,000
Plant and machinery additions during the year were $35,000. What is the cash flow arising f sale of non-current assets?
$40,000
$100,000
$120,000
$135,000
Which of the following statements about intangible assets are correct?
1. If certain criteria are met, research expenditure must be recognized as an intangible asset.
2. The notes to the financial statements should disclose the gross carrying amount and the accumulated amortization at the beginning and the end of the period for each class of intangible asset.
3. Intangible assets must be amortized over their useful life.
2 and 3 only
1 and 3 only
1 and 2 only
All three statements are correct
Which of the following statements are correct?
1. All non-current assets must be depreciated.
2. If property accounted for in accordance with IAS 16 Property, plant and equipment is revalued, the gain on revaluation is shown in the statement of profit or loss.
3. If a tangible non-current asset is revalued, all tangible assets of the same class should be revalued.
4. In a company's published statement of financial position, tangible assets and intangible assets must be shown separately.
1 and 2
2 and 3
3 and 4
1 and 4
Manchester has 10 million $1 issued ordinary shares. At 1 May 20X9 Bristol purchased 70% of Manchester’s $1 ordinary shares for $8,000,000. At that date Manchester had net assets with a fair value of $8,750,000 and its share price was $1.20. The non-controlling interest is valued using the share price at the date of acquisition.
What was the total goodwill arising on acquisition at 1 May 20X9?
$4,400,000
$350,000
$750,000
$2,850,000
The carrying amount of a company's non-current assets was $200,000 at 1 August 20X0. During the year ended 31 July 20X1, the company sold non current assets for $25,000 on which it made a loss of $5,000. The depreciation charge of the year was $20,000. What was the carrying amount of noncurrent assets at 31 July 20X1?
$150,000
$155,000
$170,000
$175,000
When is the reducing balance method of depreciating non-current assets more appropriate than the straight-line method?
When the expected life of the asset is short
When the asset is expected to decrease in value by a fixed percentage of cost each year
When the expected life of the asset is not capable of being estimated accurately
When the asset is expected to decrease in value less in later years than in the early years of its life
XYX Co’s non-current assets had carrying amounts of $368,400 and $485,000 at the beginning and end of the year respectively. Depreciation for the year was $48,600. Assets originally costing $35,000, with a carrying amount of $18,100 were sold in the year for $15,000.
What were the additions to non-current assets in the year?
$183,300
$200,200
$49,900
$180,200
Please refer material for this question
A car was purchased by a newsagent business in May 20X0 for: $
Cost 10,000
Road tax 150
Total 10,150
The business adopts a date of 31 December as its year end.
The car was traded in for a replacement vehicle in August 20X3 at an agreed value of $5,000.
It has been depreciated at 25% per annum on the reducing balance method, charging a full year’s
depreciation in the year of purchase and none in the year of sale.
What was the profit or loss on disposal of the vehicle during the year ended December 20X3?
Profit: $718
Profit: $781
Profit: $1,788
Profit: $1,836
Y purchased some plant on 1 January 20X0 for $38,000. The payment for the plant was correctly
entered in the cash book but was entered on the debit side of the plant repairs account.
Y charges depreciation on the straight line basis at 20% per year, with a proportionate charge in the
years of acquisition and disposal, and assuming no scrap value at the end of the life of the asset.
How will Y’s profit for the year ended 31 March 20X0 be affected by the error?
Understated by $30,400
Understated by $36,100
Understated by $38,000
Overstated by $1,900
Please refer material for this question
At 31 December 20X3 Q, a limited liability company, owned a building that had cost $800,000 on
1 January 20W4.
It was being depreciated at 2% per year.
On 31 December 20X3 a revaluation to $1,000,000 was recognised. At this date the building had a
remaining useful life of 40 years.
What is the balance on the revaluation surplus at 31 December 20X3 and the depreciation charge in the
statement of profit or loss for the year ended 31 December 20X4?
Depreciation charge for Revaluation surplus
year ended 31 December 20X4 as at 31 December 20X3
(statement of profit or loss) (statement of financial position)
Depreciation charge for year ended 31 December 20X4 (statement of profit or loss) 25,000 Revaluation surplus as at 31 December 20X3 (statement of financial position) 200,000
Depreciation charge for year ended 31 December 20X4 (statement of profit or loss) 25,000 Revaluation surplus as at 31 December 20X3 (statement of financial position) 360,000
Depreciation charge for year ended 31 December 20X4 (statement of profit or loss) 20,000 Revaluation surplus as at 31 December 20X3 (statement of financial position) 200,000
Depreciation charge for year ended 31 December 20X4 (statement of profit or loss) 20,000 Revaluation surplus as at 31 December 20X3 (statement of financial position) 360,000
Which of the following best explains what is meant by ‘capital expenditure’?
Expenditure on non-current assets, including repairs and maintenance
Expenditure on expensive assets
Expenditure relating to the issue of share capital
Expenditure relating to the acquisition or improvement of non-current assets
Which of the following costs would be classified as capital expenditure for a restaurant business?
A replacement for a broken window
Repainting the restaurant
An illuminated sign advertising the business name
Cleaning of the kitchen floors
Which one of the following costs would be classified as revenue expenditure on the invoice for a new
company car?
Road tax
Number plates
Fitted stereo radio
Delivery costs
Please refer material for this question
Lance is entering an invoice for a new item of equipment in the accounts. The invoice shows the
following costs:
Water treatment equipment $39,800
Delivery $1,100
Maintenance charge $3,980
Sales tax $7,854
Invoice total $52,734
Lance is registered for sales tax. What is the total value of capital expenditure on the invoice?
$39,800
$40,900
$44,880
$52,734
Which one of the following assets may be classified as a non-current asset in the financial statements of a business?
A tax refund due next year
A motor vehicle held for resale
A computer used in the office
Cleaning products used to clean the office floors
Which of the following items should be included in current assets?
(i) Assets which are not intended to be converted into cash
(ii) Assets which will be converted into cash in the long term
(iii) Assets which will be converted into cash in the near future
(i) only
(ii) only
(iii) only
(ii) and (iii)
Which of the following statements describes current assets?
Assets which are currently located on the business premises
Assets which are used to conduct the organisation’s current business
Assets which are expected to be converted into cash in the short-term
Assets which are not expected to be converted into cash in the short-term
Banjo Co purchased a building on 30 June 20X8 for $1,250,000. At acquisition, the useful life of the
building was 50 years. Depreciation is calculated on the straight-line basis. 10 years later, on 30 June
20Y8 when the carrying amount of the building was $1,000,000, the building was revalued to
$1,600,000. Banjo Co has a policy of transferring the excess depreciation on revaluation from the
revaluation surplus to retained earnings.
Assuming no further revaluations take place, what is the balance on the revaluation surplus at 30 June
20Y9?
$335,000
$310,000
$560,000
$585,000
Baxter Co purchased an asset for $100,000 on 1.1.X1. It had an estimated useful life of 5 years and it was depreciated using the straight line method. On 1.1.X3 Baxter Co revised the remaining estimated
useful life to 8 years.
What is the carrying amount of the asset at 31.12.X3?
$40,000
$52,500
$42,500
$62,000
Senakuta Co purchased a machine with an estimated useful life of 5 years for $34,000 on
30 September 20X5. Senakuta Co planned to scrap the machine at the end of its useful life and
estimated that the scrap value at the purchase date was $4,000. On 1 October 20X8, Senakuta revised
the scrap value to $2,000 due to the decreased value of scrap metal.
What is the depreciation charge for the year ended 30 September 20X9?
$7,000
$6,800
$2,800
$6,400
Please refer material for this question
Evans Co purchased a machine with an estimated useful life of 10 years for $76,000 on 30 September 20X5. The machine had a residual value of $16,000.
What are the ledger entries to record the depreciation charge for the machine in the year ended
30 September 20X8?
Dr Depreciation charge $6,000 Cr Accumulated depreciation $6,000
Dr Depreciation charge $6,000 Dr Non-current assets $12,000 Cr Accumulated depreciation $18,000
Dr Accumulated depreciation $6,000 Cr Depreciation charge $6,000
Dr Accumulated depreciation $18,000 Cr Non-current assets $18,000
Banter Co purchased an office building on 1 January 20X1. The building cost was $1,600,000 and this was depreciated by the straight line method at 2% per year, assuming a 50-year life and nil residual
value. The building was re-valued to $2,250,000 on 1 January 20X6. The useful life was not revised.
The company’s financial year ends on 31 December.
What is the balance on the revaluation surplus at 31 December 20X6?
$650,000
$792,000
$797,000
$810,000
A company purchased an asset on 1 January 20X3 at a cost of $1,000,000. It is depreciated over
50 years by the straight line method (nil residual value), with a proportionate charge for depreciation in
the year of acquisition and the year of disposal. At 31 December 20X4 the asset was re-valued to
$1,200,000. There was no change in the expected useful life of the asset.
The asset was sold on 30 June 20X5 for $1,195,000.
What profit or loss on disposal of the asset will be reported in the statement of profit or loss of the
company for the year ended 31 December 20X5?
Profit of $7,500
Profit of $235,000
Profit of $235,000
Loss of $5,000
According to IAS 38 Intangible assets, which of the following statements about research and development expenditure are correct?
1. Research expenditure, other than capital expenditure on research facilities, should be recognized as an expense as incurred.
2. In deciding whether development expenditure qualifies to be recognized as an asset, it is necessary to consider whether there will be adequate finance available to complete the project.
3. Development expenditure recognized as an asset must be amortized over a period not exceeding five years.
1, 2 and 3
1 and 2 only
1 and 3 only
2 and 3 only
Intangible assets, which of the following statements concerning the accounting treatment of research and development expenditure are true?
1. Development costs recognized as an asset must be amortized over a period not exceeding five years.
2. Research expenditure, other than capital expenditure on research facilities, should be recognized as an expense as incurred.
3. In deciding whether development expenditure qualifies to be recognized as an asset, it is necessary to consider whether there will be adequate finance available to complete the project.
4. Development projects must be reviewed at each reporting date, and expenditure on any project no longer qualifying for capitalization must be amortized through the statement of profit or loss and other comprehensive income over a period not exceeding five years.
1 and 4
2 and 4
2 and 3
1 and 3
According to IAS 38 Intangible assets, which of the following statements is/are correct?
1. Capitalized development expenditure must be amortized over a period not exceeding five years.
2. If all the conditions specified in IAS 38 are met, development expenditure may be capitalized if the directors decide to do so
.
3. Capitalized development costs are shown in the statement of financial position under the heading of non-current assets.
4. Amortization of capitalized development expenditure will appear as an item in a company's statement of changes in equity.
3 only
2 and 3
1 and 4
1 and 3
According to IAS 38 Intangible assets, which of the following are intangible non-current assets in the financial statements of Iota Co?
1. A patent for a new glue purchased for $20,000 by Iota Co
2. Development costs capitalized in accordance with IAS 38
3. A license to broadcast a television series, purchased by Iota Co for $150,000
4. A state of the art factory purchased by Iota Co for $1.5million
1 and 3 only
1, 2 and 3 only
2 and 4 only
2, 3 and 4 only
According to IAS 38 Intangible assets, which of the following statements about intangible assets are correct?
1. If certain criteria are met, research expenditure must be recognized as an intangible asset.
2. If certain criteria are met, development expenditure must be capitalized
3. Intangible assets must be amortized if they have a definite useful life
2 and 3 only
1 and 3 only
1 and 2 only
All three statements are correct
Intangible assets, which of the following statements concerning the accounting treatment of research and development expenditure are true?
1. If certain criteria are met, research expenditure may be recognized as an asset.
2. Research expenditure, other than capital expenditure on research facilities, should be recognized as an expense as incurred.
3. In deciding whether development expenditure qualifies to be recognized as an asset, it is necessary to consider whether there will be adequate finance available to complete the project.
4. Development expenditure recognized as an asset must be amortized over a period not exceeding five years.
5. The financial statements should disclose the total amount of research and development expenditure recognized as an expense during the period.
1, 4 and 5
2, 4 and 5
2, 3 and 4
2, 3 and 5
According to IAS 38 Intangible assets, which of the following statements are correct?
1. Research expenditure should not be capitalized.
2. Intangible assets are never amortized.
3. Development expenditure must be capitalized if certain conditions are met.
1 and 3 only
1 and 2 only
2 and 3 only
All three statements are correct
Theta Co purchased a patent on 31 December 20X3 for $250,000. Theta Co expects to use the patent for ten years, after which it will be valueless.
According to IAS 38 Intangible assets, what amount will be amortised in Theta Co’s statement of profit or loss and other comprehensive income for the year ended 31 December 20X4
$250,000
$125,000
$25,000
$50,000
PF purchased a quota for carbon dioxide emissions for $15,000 on 30 April 20X6 and capitalized it as an intangible asset in its statement of financial position. PF estimates that the quota will have a useful life of 3 years.
What is the journal entry required to record the amortization of the quota in the accounts for the year ended 30 April 20X9?
Dr. Expenses - $15,000
Cr. Accumulated Amortization - $15,000
Dr. Expenses - $5,000
Cr. Accumulated Amortization - $5,000
Dr. Intangible Assets - $5,000
Cr. Accumulated Amortization - $5,000
Dr. Accumulated Amortization - $15,000
Cr. Intangible Assets - $15,000
What is the purpose of amortization?
To allocate the cost of an intangible non-current asset over its useful life
To ensure that funds are available for the eventual purchase of a replacement non-current asset
To reduce the cost of an intangible non-current asset in the statement of financial position to its estimated market value
To account for the risk associated with intangible assets
Which of the following items (that all generate future economic benefits, and whose costs can be
measured reliably), is an intangible non-current asset?
1 Computer hardware owned by a business
2 Operating software that operates the computer hardware in (1)
3 A patent bought by a business
4 An extension to an office building owned by a business
All four items
1, 2 and 4 only
1 and 2 only
3 only
Which one of the following four statements is correct?
Amortisation of capitalised development expenditure will appear as an item in an entity’s statement of changes in equity.
Amortisation of capitalised development expenditure will appear as an item in an entity’s statement of changes in equity.
Capitalised development costs are shown in the statement of financial position as non-current assets.
Capitalised development expenditure must be amortised over a period not exceeding five years.
Complete the following statement by selecting the appropriate wording from the choice available. When accounting for intangible assets using the revaluation model, movements in the carrying amount are……………………………………………………………………..
accounted for in other comprehensive income and other components of equity
accounted for in other comprehensive income only
accounted for in other comprehensive income only
accounted for on other components of equity only
What is the correct accounting treatment for an intangible asset with an indefinite useful life?
It is recognised at cost for as long as the entity has the intangible asset.
It is recognised at cost and is subject to an annual impairment review.
It is recognised at cost and the entity must make an estimate of estimated useful life so that it can be amortised.
It cannot be recognised as an intangible asset as it would not be possible to calculate an annual amortisation charge.
Classify each of the following costs as either a research expense or as an intangible asset.
Research expense and Intangible asset
Market research costs
Patented product design costs
Both intangible assets
Both Research expenses
Research expense and Intangible asset
Intangible asset and Research expense
Which one of the following statements best defines an intangible asset?
An intangible asset is an asset with no physical substance
An intangible asset is always generated internally by a business
An intangible asset is an asset which cannot be sold
An intangible asset is a purchased asset which has no physical substance
Which THREE of the following statements are correct in relation to application of IAS 38 Intangible Assets?
(A) Research costs should be expenses to the statement of profit or loss.
(B) All types of goodwill can be capitalised.
(C) Capitalised development costs that no longer meet the criteria specified by IAS 38 must be written off to the statement of profit or loss.
(D) Capitalised development costs are amortised from the date the assets is available to use or sell.
(E) Research costs written off can be re-capitalised when the developed asset is feasible.
(F) Only purchased intangibles can be capitalised.
(A), (C), (E)
(A), (C), (B)
(A), (C), (F)
(A), (C), (D)
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 organization 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 organization 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
An organisation's asset register shows a carrying amount of $145,600. The non-current asset account in the nominal ledger shows a carrying amount of $135,600. The difference could be due to a disposed asset not having been deducted from the asset register.
Which one of the following could represent that asset?
Asset with disposal proceeds of $15,000 and a profit on disposal of $5,000
Asset with disposal proceeds of $15,000 and a carrying amount of $5,000
Asset with disposal proceeds of $15,000 and a loss on disposal of $5,000
Asset with disposal proceeds of $5,000 and a carrying amount of $5,000
Which one of the following would occur if the purchase of computer stationary was debited to 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
A manufacturing company receives an invoice on 29 February 20X2 for work done on one of its machines. $25,500 of the cost is actually for a machine upgrade, which will improve efficiency. The accounts department do not notice and charge the whole amount to maintenance costs. Machinery is depreciated at 25% per annum on a straight-line basis, with a proportional charge in the years of acquisition and disposal.
By what amount will the profit for the year to 30 June 20X2 be understated?
$19,125
$25,500
$23,375
$21,250
W bought a new printing machine. The cost of the machine was $80,000. The installation costs were $5,000 and the employees received training on how to use the machine, at a cost of $2,000. Before using the machine to print customers' orders, a test was undertaken and the paper and ink cost $1,000.
What should be the cost of the machine in the company's statement of financial position?
$80,000
$85,000
$86,000
$88,000
