8/13/24, 11:44 AM BA3 IAS 16 AND 36 QUESTIONS

BA3 IAS 16 AND 36 QUESTIONS

BA3 IAS 16 AND 36 QUESTIONS

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1. KLM owns and operates a successful pizza business since 20X1.

KLM bought the following assets as the pizza business grew:

· a new oven for the kitchen at a cost of $2,000 (purchased 1 December 20X4)

· a van for deliveries at a cost of $18,000 (purchased 1 June 20X4)

KLM depreciated the oven at 10% straight line and the van at 25% reducing balance. A full
year’s depreciation is charged in the year of purchase and none in the year of disposal.

Required:

What is the total depreciation charge for the year ended 31 October 20X6? (2 Points)

2. X purchased a van on 1 January 20X4 for $10,000. At the date of purchase, it was estimated
that the van would have an estimated resale value of $400 after 6 years’ use. The van was
depreciated on a straight-line basis, applying a pro-rata charge in the year of acquisition and
disposal.

The van was sold on 30 June 20X6 for $5,500.

Required:
Calculate the profit or loss on disposal of the van. (2 Points)

Loss 500

Profit 450

Profit 600

Loss 420

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3. At 31 December 20X5, HKM had a non-current asset which had cost $15,000 and on which
accumulated depreciation was $10,000. Information collated for an impairment review at that
date identified that its fair value was $4,900 and costs to sell were $600. The value in use of
the non-current asset was $4,800.

Required:

What was the extent of impairment recognised in HKM’s financial statements at 31

December 20X5? (2 Points)

4. Gain or loss on disposal of an asset is the difference between the sale price of an asset and
(2 Points)

The cost of the asset less depreciation up to the beginning of the year in which disposal took place

The cost of that asset

The cost or revaluation less depreciation up to the beginning of the year in which disposal took place.

The cost or revaluation less accumulated depreciation up to the date of disposal

5. The only vehicle owned by a company is reported at its cost of $60, 0000 in the motor vehicle
account, while the depreciation on the vehicle written off in each of the three year of use is
reported in an accumulated depreciation account at $36,000. Which of the following
statement is
incorrect regarding when the whole $36,000 need to be transferred away from the
accumulated
depreciation account. (2 Points)

when the asset is traded in for another

Annually when the financial statements are prepared

When the asset is revalued

When the asset is disposed off

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6. A machine acquired for $360,000 on 1st April 2006 and depreciated at 10% of cost per
annum was
sold for $112,000 on 30th September 2011. Depreciation is time apportioned. Expenses of
disposal
amounted to $3,000. What is the gain or loss on disposal of the machine to be reported in?
(2 Points)

$161,000 gain

$161,000 loss

$53,000 gain

$ 53, 000 loss

7. A machine costing $720,000 and written down to $432,000 by 1st July 2010, was revalued on
that
date at $900,000. Twelve years of the machine’s useful life remain. What is the revaluation
surplus? (2 Points)

Revaluation surplus:$ 39,000

Revaluation surplus:$ 180,000

Revaluation surplus:$ 468,000

Revaluation surplus:$ 612,000

8. What is the purpose of charging depreciation in the accounts? (2 Points)

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

to ensure that funds are available for 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

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9. An asset register showed a carrying value of $67,460. A non –current asset costing $15,000
had
been sold for $4,000, making 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? (2 Points)

$42,710

$51,210

$53,710

$62,210

10. 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 year when it was purchased. What is
the
balance on the relauation surplus reported in the statement of financial position? (2 Points)

$210,000

$136,000

$74,000

$34,000

11. Which of the following would occur if the purchase of computer stationery debited to the
computer
equipment at cost? (2 Points)

an overstatement of profit and overstatement of non-current assets

an understatement of profit and overstatement of non-current assets

an overstatement of profit and understatement of non-current assets

an understatement of profit and understatement of non-current assets

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8/13/24, 11:44 AM BA3 IAS 16 AND 36 QUESTIONS

12. Which of the following statements are correct

1 IAS 16 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 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. (2 Points)

1,2 and 3

2 and 3 only

2 and 4 only

1,2, and 4 only

13. The following information is relevant for the questions 13 and 14

Qusna Co purchased a building on 31 December 20X1 for $750,000. At the date of
acquisition, the
useful life of the building was estimated to be 25 years and depreciation is calculated using
the
straight line method. At 31 December 20X6, an independent valuer valued the building at
$1,000,000 and revaluation was recognised in the statements. Gusna’s accounting policies
state that
excess depreciation arising on revaluation of no-current assets can be transferred from
revaluation
surplus to retained earnings.

What is the depreciation charge on the building for the year ended 31 December 20X7?
(2 Points)

$40,000

$50,000

$30,000

$42,500

14. What is the journal entry to record the transfer of excess depreciation from the revaluation
surplus
to retained earnings? (2 Points)

DR Revaluation surplus $20,000, CR retained earnings $20,000

Dr Revaluation surplus $12,500, CR retained earnings $12,500

Dr retained earnings $20,000, CR revaluation surplus $20,000

DR retained earnings $12,500, CR revaluation surplus $12,500

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8/13/24, 11:44 AM BA3 IAS 16 AND 36 QUESTIONS

15. Which of the following costs would be classified as revenue expenditure on the invoice for a
new
company car? (2 Points)

Road tax

Number plates

Fitted stereo radio

Delivery costs

16. A car was purchase 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?
(2 Points)

profit $718

Profit $781

profit $1,788

Profit $ 1,836

17. Which of the following are reasons for maintaining a non-current asset register?
(i) To calculate the total balance outstanding on loans raised to buy non-current assets
(ii) To help in carrying out the physical verification of non-current assets
(iii) To calculate the profit or loss on disposal of no-current assets (2 Points)

(i) , (ii) and (iii)

(1) and (ii)only

(i) and (iii) only

(ii) and (iii) only

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