Q: Under the double-diminishing-balance method, what is the depreciation rate for an asset with a useful life of 10 years?

$$\frac{100\%}{10} \times 2 = 20\%$$

Q: Which formula correctly calculates the carrying amount of an asset?

$$\text{Cost} - \text{Accumulated Depreciation}$$

Q: A company uses the units-of-production method for a machine costing $$100,000 with a residual value of 10$$,000 and an expected total output of 90,000 units. If the machine produces 18,000 units in the first year, what is the depreciation expense for that year?

$$\frac{100,000 - 10,000}{90,000} \times 18,000 = 18,000$$

Question 1

Which of the following costs should NOT be included in the initial cost of land when acquired for use in operations?

Accepted Answer

Cost of paving a parking lot on the land

Question 2

A company purchases equipment for $$50,000. Additional costs include 2$$,000 for freight, $$1,000 for installation, and 500 $$for a one-year insurance policy. What is the total amount to be capitalized as the cost of equipment?

Accepted Answer

$53,000

Question 3

Which of the following statements about depreciation is TRUE?

Accepted Answer

Depreciation is a systematic allocation of an asset's cost over its useful life.

Question 4

A machine was purchased for $$40,000, has a residual value of 4$$,000, and a useful life of 8 years. Using the straight-line method, what is the annual depreciation expense?

Accepted Answer

$4,000

Question 5

Which of the following is NOT a characteristic of property, plant, and equipment (PP&E)?

Accepted Answer

They are intended for sale to customers.

Question 6

Under the double-diminishing-balance method, what is the depreciation rate for an asset with a useful life of 10 years?

Accepted Answer

$$\frac{100\%}{10} 	imes 2 = 20\%$$

Question 7

A company sells equipment for $$12,000. The equipment originally cost 20$$,000 and has accumulated depreciation of $10,000. What is the gain or loss on disposal?

Accepted Answer

Gain of $2,000

Question 8

Which of the following expenditures should be capitalized rather than expensed?

Accepted Answer

Replacement of a major component that extends the asset's useful life

Question 9

Which of the following is TRUE regarding the accounting for intangible assets with indefinite lives?

Accepted Answer

They are not amortized but are tested annually for impairment.

Question 10

A company purchased a patent for $60,000 with a legal life of 20 years but expects to use it for only 10 years. What is the annual amortization expense?

Accepted Answer

$6,000

Question 11

Which of the following best describes goodwill?

Accepted Answer

The excess of the purchase price over the fair value of net identifiable assets acquired in a business combination.

Question 12

Under IFRS, which lease arrangement would NOT require the lessee to recognize a right-of-use asset and related liability?

Accepted Answer

A 10-month lease of a low-value office printer

Question 13

Which formula correctly calculates the carrying amount of an asset?

Accepted Answer

$$	ext{Cost} - 	ext{Accumulated Depreciation}$$

Question 14

A company uses the units-of-production method for a machine costing $$100,000 with a residual value of 10$$,000 and an expected total output of 90,000 units. If the machine produces 18,000 units in the first year, what is the depreciation expense for that year?

Accepted Answer

$$\frac{100,000 - 10,000}{90,000} 	imes 18,000 = 18,000$$

Question 15

Which of the following is an example of an impairment loss?

Accepted Answer

When the carrying amount of an asset exceeds its fair value

Question 16

Which of the following best describes the asset turnover ratio?

Accepted Answer

It measures how efficiently a company uses its assets to generate sales.

Question 17

A company revises the estimated useful life of a machine from 10 years to 15 years after 4 years of use. How should this change be accounted for?

Accepted Answer

Prospectively, affecting current and future periods only

Question 18

Which of the following is NOT a required disclosure for long-lived assets under IFRS?

Accepted Answer

Market value of all assets

Question 19

A company purchased equipment for $$80,000 on January 1, 2021. The equipment has a useful life of 8 years and a residual value of 8$$,000. If the company uses the double-diminishing-balance method, what is the depreciation expense for 2021?

Accepted Answer

$16,000

Question 20

Which of the following is TRUE regarding the derecognition (disposal) of property, plant, and equipment?

Accepted Answer

Depreciation must be updated to the date of disposal before calculating gain or loss.

Chapter 9: Reporting and Analyzing Long-Lived Assets

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