Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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What is the principal criterion used to distinguish
between tangible assets and inventories?
a. | The physical substance of the
asset. | b. | The acquisition cost of the
asset. | c. | The nature of the company’s activity, which
determines the purpose for which the asset is held. | d. | The moment in the accounting period when the asset is
acquired. |
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2.
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What is the acquisition cost of an asset given the
following items:
Purchase price
100
Import
duties
10
Transportation
15
Installation cost
7
Professional fees
2
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3.
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According to IAS 16, what is “the systematic
allocation of the depreciable [cost] of an asset over its useful life”?
a. | Impairment | b. | Depreciation | c. | Write-down | d. | Write-off
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4.
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The choice of the appropriate depreciation method
should be made so as to:
a. | Best reflect the pattern of decline in the asset’s
service potential. | b. | Facilitate the
computation of the depreciation expense by the accountants. | c. | Reduce the depreciation expense when the enterprise reports a
loss. | d. | None of the above
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5.
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Given the following data, what is the depreciation
expense of an asset for the first year?
Acquisition cost
6
000
Estimated residual value
1 000
Estimated useful
life
5
Depreciation method
used
Straight-line method
a. | 2 000 | b. | 1 500 | c. | 1
200 | d. | 1 000
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6.
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What happens when the book value has reached the
residual value?
a. | The asset will no longer be reported in the balance
sheet. | b. | The asset is systematically disposed
of. | c. | 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. | d. | None of the
above |
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7.
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Which of the following entries is made to record
the depreciation expense for a manufacturing asset, in an income statement organized by nature of
expenses?
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8.
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How are tangible assets, which were created or
developed internally, valued?
a. | At their replacement cost | b. | At their liquidation cost | c. | At their present cost | d. | At their
historical cost |
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9.
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Which of the following statements is
false?
a. | 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. | b. | In practice, tests
for impairment are very difficult to implement. | c. | An impairment loss
cannot be reversed. | d. | Practice and
regulation regarding impairment have varied over time and between countries in the
world. |
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10.
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How is depreciation recorded when an asset is sold
during the accounting period?
a. | Depreciation must be recorded for the whole accounting
period. | b. | 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. | c. | Depreciation is not recorded. | d. | None of the above
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