ACC206: Financial Accounting MCQ 2.0

1. HL Ltd purchased a high speed industrial equipment at a cost of $420,000. Shipping costs totalled $15,000. Foundation work has to be done to house the equipment at HL Ltds premises and costs $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labour and testing costs totalled $6,000. Materials used up in testing cost $3,000. Under FRS 16 Property, Plant and Equipment , the capitalised cost of the industrial equipment is:

a. $420,000

b. $435,000

c. $446,000

d. $455,000

2. Under the conventional retail method, which of the following is not included in the denominator of the current period cost-to-retail conversion percentage?

a. Purchase returns

b. Net markups

c. Net markdowns

d. Purchases

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

a. The seller recognises a gain or loss on the income statement for the difference between the cash received and the fair value of the asset sold.

b. The seller recognises a gain or loss on the income statement for the difference between the cash received and the book value of the asset sold.

c. None of the listed options.

d. The seller recognises gains, but not losses on the income statement.

4. 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.

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

11. When can an investment property be derecognised under FRS 40 Investment Property?

a. Possible in all the listed options.

b. Only when it is disposed to a third party.

c. Only when no future economic benefits are expected from its disposal.

d. Only when it is permanently withdrawn from use.

12. 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, the equipment is:

a. Impaired because its book value exceeds the estimated discounted future cash flows.

b. Impaired because its book value exceeds the estimated undiscounted future cash flows.

c. Not impaired because its book value exceeds estimated discounted future cash flows.

d. Not impaired because its book value exceeds fair value less costs of disposal.

13. At the end of its fiscal year, a triggering event caused AA Ltd to perform an impairment test for one of its manufacturing facilities. The book value at the end of the fiscal year was $65 million, the estimated undiscounted future cash flows was $63 million, the estimated discounted future cash flows was $60 million, and the fair value less costs of disposal is $50 million. Under FRS 36 Impairment of Assets, what is the recoverable amount of the manufacturing facility?

a. $65 million

b. $60 million

c. $63 million

d. $50 million

14. 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, what is the recoverable amount of the equipment?

a. $40 million

b. $62 million

c. $63 million

d. $60 million

15. Under FRS 36 Impairment of Assets, when testing for impairment of property, plant and equipment, an impairment loss may be required if the:

a. asset's book value exceeds the discounted sum of expected future cash flows.

b. discounted sum of its expected future cash flows exceeds the asset's book value.

c. None of the listed options.

d. undiscounted sum of expected future cash flows exceeds its book value.

16. 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.

17. 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

18. 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.

19. Which of the following does not have to be met in order for the operation to be classified as a discontinued operation under FRS 105 Non-current Assets held for sale and Discontinued Operations?

a. The operation is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.

b. The operation should represent a separate major line of business or geographical area of operations.

c. The operation must be sold within three months of the financial year-end.

d. The operation is a subsidiary acquired exclusively with a view to resale.