Answered: Property, Plant and Equipment 1.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The choices are:

A. Statement 1 is true, Statement 2 is false
B. Statement 1 is false, Statement 2 is true
C. Both are true
D. Both are false

Property, Plant and Equipment
1. Statement 1: Carrying amount is the amount at which an asset is recognized after deducting
any accumulated depreciation and accumulated impairment losses.
Statement 2: Carrying amount is also known as the Book Value of an asset
2. Statement 1: Impairment loss is the amount by which the carrying amount of an asset exceeds
its replacement cost.
Statement 2: Recoverable amount is the higher of an asset's fair value less costs of disposal
and its value in use.
3. Statement 1: The cost of PPE shall be recognized as an asset if and only if, it is probable that
future economic benefits associated with the item will flow from the entity.
Statement 2: The cost of the item can be measured reliably.
4. Statement 1: The initial cost of an item of property, plant and equipment comprises exclusively
of purchase price and directly attributable costs bringing the asset to its location and condition.
Statement 2: Costs of relocating or reorganizing part or all of an entity's operations should be
capitalized.
5. Statement 1: Mode of Acquisition in issuance of bonds should be measured at the fair value of
the bonds issued.
Statement 2: Mode of Acquisition in issuance of bonds should be measured at the present value
of the bonds issued.
6. Statement 1: Mode of Acquisition in Donated Asset: If from a shareholder, at fair value of the
asset received to be recorded as "Donated Capital", any additional cost deducted from share
premium.
Satement 2: Mode of Acquisition in Donated Asset: If from a non-shareholder, at fair value of
the asset received plus directly attributable costs, recorded as "Income from Donations"
7. Statement 1: Commercial substance exists when the cash flows of the asset received differ
from the cash flows of the asset given up, and the difference is significant relative to the carrying
amount of the asset given up.
Statement 2: Commercial substance exists when the entity-specific value of the portion of the
entity's operations affected by the transactions changes as a result of the exchange and the
change is significant relative to the carrying of the asset exchanged.
8. Statement 1: All losses and wastes shall be treated as expense and excluded as cost of the
asset.
Statement 2: Normal wastes are capitalized as part of the asset.
9. Statement 1: Broker's Commission is capitalized under the Machinery and Equipment Account.
Statement 2: Cost of surveying is capitalized under Self-Constructed Building.

Transcribed Image Text:Depreciation and Revaluation 10. Statement 1: According to IAS16, if land is subsequently measured at revaluation model then Machinery can either be measured at revaluation or cost model, as appropriate. Statement 2: According to IAS16, if land is subsequently measured at revaluation model then Machinery should also be measured at revaluation model. 11. Statement 1: Depreciation is the periodic adjustment of the carrying amount of fixed assets due to the passage of time and/or their continuous use. Statement 2: Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. 12. Statement 1: The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for changes in policies. Statement 2: The depreciation method used shall reflect the pattern in which the asset's future economic benefits are expected to be consumed by the entity. 13. Statement 1: The cost model is easier to apply since it does not consider changes in the fair value of the item of PPE. Statement 2: The frequency of revaluation may be: Every two or five years for property, plant and equipment with only insignificant changes in fair value. 14. Statement 1: When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is treated in one of the following ways: Restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. This method is often used when an asset is revalued by means of applying an index to its depreciated replacement cost. Statement 2: When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is treated in one of the following ways: Eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. This method is often used for buildings. 15. Statement 1: Replacement cost pertains to the price to purchase a brand-new asset similar or identical to the asset being revalued. Statement 2: Revaluation surplus the excess of the revalued amount over the carrying amount of the asset on the date of revaluation. 16. Statement 1: If a previous revaluation increase is reversed due to changes in the fair value, the decrease is first closed to any existing revaluation surplus in the books. Any excess is debited to Gain/losses Excess and should be recognized in profit or loss. Statement 2: if a previous impairment loss is reversed, the increase is first credited to gain on reversal of impairment as part of profit/loss to the extent of the prior impairment loss. Any excess is credited to revaluation surplus (OCI). 17. Statement 1: Under Financial Statement disclosure requirement, the existence and amounts restrictions on title, and property, plant and equipment pledged as security for liabilities. Statement 2: Under Financial Statement disclosure requirement, if it is not disclosed separately in the statement of comprehensive income, the amount of compensation from related parties for items of property, plant and equipment that were impaired, lost or given up that is included in profit or loss.

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