Question

ACC206: Financial Reporting MCQ please help

1. According to FRS 16 Property, Plant and Equipment, gains when selling property, plant and equipment for cash:

a. are the excess of the cash proceeds over the fair value of the assets.

b. are the excess of the book value of the assets over the cash proceeds.

c. are part of cash flows from operations.

d. None of the listed options.

2. At the end of its fiscal year, an adverse economic condition caused AA Ltd to perform an impairment test for one of its patents, for which it originally paid $66 million for. At the end of the fiscal year, it had accumulated amortisation of $16 million on the patent. The estimated undiscounted future cash flows was $45 million, the estimated discounted future cash flows was $43 million, and the fair value less costs of disposal is $35 million. Under FRS 36 Impairment of Assets, AA Ltd

a. would record no impairment loss on the equipment.

b. would debit impairment loss of $7 million and credit accumulated impairment loss of $7 million.

c. would debit impairment loss of $5 million and credit accumulated impairment loss of $5 million.

d. would debit impairment loss of $15 million and credit accumulated impairment loss of $15 million.

3. At the end of its fiscal year, an adverse economic condition caused AA Ltd to perform an impairment test for one of its patents, for which it originally paid $60 million for. At the end of the fiscal year, it had accumulated amortisation of $16 million on the patent. The estimated undiscounted future cash flows was $45 million, the estimated discounted future cash flows was $43 million, and the fair value less costs of disposal is $35 million. Under FRS 36 Impairment of Assets, what is the recoverable amount of the patent?

a. $44 million

b. $43 million

c. $60 million

d. $35 million

4. At the end of its fiscal year, an adverse economic condition caused AA Ltd to perform an impairment test for one of its equipment, for which it originally paid $90 million for. At the end of the fiscal year, it had accumulated depreciation of $27 million on the equipment. The estimated undiscounted future cash flows was $62 million, the estimated discounted future cash flows was $60 million, and the fair value less costs of disposal is $40 million. Under FRS 36 Impairment of Assets, AA Ltd

a. would record no impairment loss on the equipment.

b. would debit impairment loss of $3 million and credit accumulated impairment loss of $3 million.

c. would debit accumulated impairment loss of $3 million and credit impairment loss of $3 million.

d. would debit impairment loss of $23 million and credit accumulated impairment loss of $23 million.

5. Surgical Medical Supplies Ltd (“Surgical”) has the following information for its surgical equipment inventory. The selling price of the inventory is $240. The cost of the inventory is $190. The estimated costs to sell the inventory is $10. Under FRS 2 Inventories, how should Surgical report this inventory item on its balance sheet?

a. $190

b. $180

c. $230

d. $200

6.  According to FRS 16 Property, Plant and Equipment, the revaluation of equipment when fair value exceeds book value usually results in:

a. A decrease in net income.

b. None of the listed options

c. An increase in other comprehensive income.

d. A decrease in other comprehensive income.

7. Surgical Medical Supplies Ltd (“Surgical”) has the following information for its surgical equipment inventory. The selling price of the inventory is $230. The cost of the inventory is $220. The estimated costs to sell the inventory is $20. Under FRS 2 Inventories, how should Surgical report this inventory item on its balance sheet?

a. $230

b. $220

c. $200

d. $210

8. Which of the following statements relating to FRS 16 Property, Plant and Equipment is FALSE?

a. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the gross carrying amount may be restated proportionately to the change in the carrying amount.

b. None of the listed options

c. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the gross carrying amount may be restated by reference to observable market data.

d. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the accumulated depreciation is eliminated against the gross carrying amount of the asset.

9. An exclusive 15-year right to manufacture a product or use a process is a:

a. patent

b. copyright

c. franchise

d. trademark

10. Surgical Medical Supplies Ltd (“Surgical”) has the following information for its surgical equipment inventory. The selling price of the inventory is $230. The cost of the inventory is $200. The estimated costs to sell the inventory is $20. Under FRS 2 Inventories, how should Surgical report this inventory item on its balance sheet?

a. $210

b. $200

c. $230

d. $180

Answer 1

1. FRS 16 outlines the accounting for ‘Property, Plant and Equipment’ in different scenario and situations like how it is valued, depreciation to be charged etc. When a property, plant or equipment is sold, the seller recognises gain or loss on sale of these assets by determining the book value and the sale proceeds.
a. Gain is recognised by comparing sale proceeds with the book value of assets not the fair value of assets. Book value is determined by adjusting depreciation expense till the date of sale to the book value of assets.

b. Gains when selling property, plant and equipment are excess of the cash proceeds over the book value of assets. Losses when selling property, plant and equipment are excess of the book value of assets over the cash proceeds.

c. Cash flow from operations is a section of cash flow statement. Gains are subtracted from cash flow from operations because it is already included in the net income of the business. So, gains are not a part of cash flow from operations.

d. None of the listed options - This option is the correct option as according to FRS 16 Property, Plant and Equipment, gains when selling property, plant and equipment for cash is excess of cash proceeds over the book value of assets adjusted by the accumulated depreciation till the date of sale.