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

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

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 the cost of an asset over its useful life.

Question 4

A machine was purchased for $$40,000, with an estimated residual value of 4$$,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

Under the double-diminishing-balance method, what is the depreciation rate for an asset with a useful life of 5 years?

Accepted Answer

$$20\% 	imes 2 = 40\%$$

Question 6

A company uses the units-of-production method for a delivery van costing $$33,000 with a residual value of 3$$,000 and an estimated useful life of 100,000 km. If the van is driven 15,000 km in the first year, what is the depreciation expense for that year?

Accepted Answer

$$4,500$$

Question 7

Which of the following is NOT a characteristic of property, plant, and equipment?

Accepted Answer

They are intended for sale to customers.

Question 8

Which of the following expenditures should be capitalized as a capital expenditure rather than expensed as an operating expenditure?

Accepted Answer

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

Question 9

Under IFRS, which of the following leases 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 10

A company sells equipment for $$12,000. The equipment originally cost 30$$,000 and has accumulated depreciation of $20,000. What is the gain or loss on disposal?

Accepted Answer

Gain of $2,000

Question 11

Which of the following intangible assets is NOT amortized?

Accepted Answer

Trademark with an indefinite life

Question 12

Goodwill is recognized on the statement of financial position when:

Accepted Answer

A company acquires another business and pays more than the fair value of net identifiable assets

Question 13

Which formula correctly calculates the carrying amount of an asset?

Accepted Answer

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

Question 14

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, by adjusting depreciation in current and future periods only

Question 15

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 16

A company purchased a natural resource for $500,000. It is estimated to contain 100,000 tons of material and has no residual value. If 20,000 tons are extracted in the first year, what is the depletion expense for that year?

Accepted Answer

$$100,000$$

Question 17

Which of the following is a correct formula for calculating annual depreciation expense using the straight-line method?

Accepted Answer

$$\frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}}$$

Question 18

Which of the following is an example of an operating lease under ASPE?

Accepted Answer

A lease where the lessee records only rental expense and does not recognize the asset or liability

Question 19

If an asset's carrying amount exceeds its fair value, what accounting action is required?

Accepted Answer

Recognize an impairment loss equal to the difference

Question 20

Which of the following is NOT required to be disclosed in the notes to the financial statements regarding long-lived assets?

Accepted Answer

The fair value of all property, plant, and equipment

Reporting and Analyzing Long-Lived Assets (Chapter 9) – Study Notes

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