What is the principal criterion used to distinguish between tangible assets and inventories? (Difficulty: Easy)
The physical substance of the asset
The acquisition cost of the asset
The nature of the company’s activity, which determines the purpose for which the asset is held
The moment in the accounting period when the asset is acquired
What is the acquisition cost of an asset given the following items: (Difficulty: Moderate) Purchase price 100 Import duties 10 Transportation 15 Installation cost 7 Professional fees 2
100
109
125
134
Which of the following tangible assets cannot be depreciated? (Difficulty: Moderate)
Building
Equipment
Land
Vehicle
According to IAS 16, what is ‘the systematic allocation of the depreciable [cost] of an asset over its useful life’? (Difficulty: Easy)
Impairment
Depreciation
Write-down
Write-off
The choice of the appropriate depreciation method should be made so as to: (Difficulty: Easy)
Best reflect the pattern of decline in the asset’s service potential
Facilitate the computation of the depreciation expense by the accountants
Reduce the depreciation expense when the entity reports a loss
None of these
Given the following data, what is the depreciation expense of an asset for the first year? (Difficulty: Moderate) Acquisition cost 6 000 Estimated residual value 1 000 Estimated useful life 5 Depreciation method used Straight-line method
2000
1500
1200
1000
What happens when the book value has reached the residual value? (Difficulty: Moderate)
The asset will no longer be reported in the balance sheet
The asset is systematically disposed of
The asset might not be taken out of service if it is still reliable and useful and will be carried in the balance sheet for a book value equal to the residual value
None of these
How are tangible assets, which were created or developed internally, valued? (Difficulty: Easy)
At their replacement cost
At their liquidation cost
At their present cost
At their historical cost
Which of the following statements is false? (Difficulty: Easy)
If the fair market value of a tangible asset is less than its book value, such asset should be written down and a loss recognized as an ‘impairment loss’ expense.
In practice, tests for impairment are very difficult to implement.
An impairment loss cannot be reversed.
Practice and regulation regarding impairment have varied over time and between countries in the world.
How is depreciation recorded when an asset is sold during the accounting period? (Difficulty: Moderate)
Depreciation must be recorded for the whole accounting period.
Depreciation must be recorded for the period of time between the date of the last depreciation entry (end of the previous accounting period) and the date of sale.