IAS 16 (Property Plant Equipment)

1.

2 points

Borrowing costs that are directly attributable to the acquisition of a qualifying asset must be capitalized as part of the cost of that asset. True or False?

True

False

2.

2 points

On 1 January 2011, a company which prepares financial statements to 31 December each year buys an item of equipment for £20,000. Useful life is estimated to be six years and residual value is expected to be approximately £1,500.

The company uses the diminishing balance method of depreciation at a rate of 35% per annum.

To the nearest pound, the depreciation of this item for the year to 31 December 2012 would be:

£4,550

£4,209

£3,083

£7,000

3.

2 points

Which of the following items qualifies as property, plant and equipment?

A machine bought for use during a single accounting period

Computer software bought for use in more than one accounting period

A machine bought for resale to a customer

A machine bought for use in more than one accounting period

4.

2 points

A company pays £40,000 to replace a major component of a factory machine. The faulty component that is replaced is sold for £2,000.

The carrying amount of the machine just before this replacement occurs is £450,000, of which £10,000 relates to the faulty component that is being replaced.

The revised carrying amount of the machine after the replacement occurs and the profit or loss on disposal of the faulty component are:

Carrying amount £490,000, Loss £8,000

Carrying amount £480,000, Loss £10,000

Carrying amount £480,000, Loss £8,000

Carrying amount £490,000, Profit £2,000

5.

2 points

On 31 December 2011, a company acquires land for £500,000. The land is revalued at £530,000 on 31 December 2012 and £460,000 on 31 December 2013.

The company prepares financial statements to 31 December each year and uses the revaluation model in relation to land.

The correct accounting treatment of each revaluation in the statement of comprehensive income is as follows:

2012 Other comprehensive income £30,000 2013 Expense £70,000

2012 Other comprehensive income £30,000 2013 Negative other comprehensive income £30,000 Expense £40,000

2012 Income £30,000 2013 Expense £70,000

2012 Other comprehensive income £30,000 2013 Negative other comprehensive income £70,000

6.

2 points

Which of the following would not be included in the cost of an item of property, plant and equipment?

Delivery and installation charges

Refundable value added tax

Testing costs

Site preparation costs

7.

2 points

Depreciation is defined as the fall in value of an asset during an accounting period. True or False?

True

False

8.

2 points

The "carrying amount" of an item of property, plant and equipment generally refers to:

The amount at which the item is recognised in the financial statements

The depreciable amount of the item

The cost of the item

The replacement cost of the item

9.

2 points

A company has the following general borrowings outstanding throughout the whole of an accounting year:

6.5% Bank loan of £400,000
8% Bank loan of £800,000

If a qualifying asset costing £50,000 is funded out of these general borrowings, the capitalisation rate that should be used is:

8%

6.5%

7.5%

7.25%

10.

2 points

If investment property is measured using the fair value model, a gain arising from a change in the fair value of an investment property must be

Recognised as other comprehensive income

Credited to a revaluation reserve

Ignored

Recognised in the calculation of profit or loss