Chapter 23 (Valix)

Question 1

How are spare parts, servicing equipment, and stand-by equipment accounted for?

Answer 1

Minor spare parts and servicing equipment are usually carried as inventory and are expensed when consumed.

Major spare parts and stand-by equipment are classified as PPE when they are expected to be used for more than 1 year.

Question 2

On initial recognition, at what should PPE be measured?

Answer 2

at cost

Question 3

This is the amount of cash or cash equivalent paid and the fair value of the other consideration given to acquire an asset at the time of acquisition or construction.

Answer 3

Cost

Question 4

How are proceeds from samples accounted for?

Answer 4

With the amendment of the PAS 16, the proceeds are accounted for in profit or loss and are not deducted from the cost of the PPE.

If they are not yet sold, they are accounted for as inventory.

Question 5

How is PPE accounted for after initial recognition?

Answer 5

Cost model

Revaluation model

Question 6

True or False: If an entity chooses cost model as the accounting policy for its PPE after initial recognition, it may also choose revaluation model to account for some of its PPE.

Answer 6

False.

An entity shall apply such accounting policy to an entire class of PPE.

Question 7

This model or accounting policy means that the PPE are carried at cost less any accumulated depreciation and any accumulated impairment loss.

Answer 7

Cost model

Question 8

This model or accounting policy means that the PPE are carried at revalued carrying amount.

Answer 8

Revaluation model

Question 9

This is the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment loss.

Answer 9

Revalued carrying amount

Question 10

The cost of PPE on a cash basis acquisition is?

Answer 10

Cash paid plus directly attributable costs

Question 11

The cost of PPE acquired on account is?

Answer 11

Invoice price less cash discount (regardless whether the discount was taken or not)

Question 12

When measuring the cost of PPE on account and the cash discount was not availed, how is it accounted for?

Answer 12

The cash discount lost is charged to purchase discount lost (or other expense) account which is an expense account.

Question 13

What is the reason for automatically deducting the cash discount when a PPE is availed on credit?

Answer 13

A reasonably wise management would take advantage of all discounts.

Question 14

The cost of PPE acquired on long-term deferred payments terms or with a note payable or on installment basis is?

Answer 14

The cash price of the PPE (not the installment price)

Question 15

If the cash price of the PPE is not given in an installment based acquisition or with a note payable, how is the cost measured?

Answer 15

The cost is the fair value of the note or the present value of all the payments using an implied interest rate (market rate).

Question 16

The cost of PPE acquired through he issuance of share capital, the cost is?

Answer 16

The cost of the PPE is measured in the order of priority:
1. Fair value of the property received
2. Fair value of the shares issued
3. Par value of the shares issued

Question 17

The cost of PPE acquired through the issuance of bonds payable is?

Answer 17

The cost of the PPE is measured in the order of priority:
1. Fair value of bonds payable
2. Fair value of the asset received
3. Face amount of the bonds payable

Question 18

When the exchange lacks commercial substance and/or the the FV of the asset received or the asset given is not reliably measured, how is the exchange measured?

Answer 18

It is measured using carrying amount.

Question 19

This is a new notion and is defined as the event or transaction causing the cash flows of the entity to change significantly by reason of the exchange.

Answer 19

Commercial Substance

Question 20

This is the present value of the cash flows expected to arise form the continuing use of an asset and from the disposal at the end of the useful life or expected to be incurred when settling a liability.

Answer 20

Entity-specific value

Question 21

The cost of PPE in an exchange is?

Answer 21

On the part of the payor: Fair value of the PPE given plus the cash paid

On the part of the recipient: fair value of the PPE given minus the cash received

Question 22

This involves a non dealer acquiring an asset from a dealer.

Answer 22

Trade in

Question 23

The cost of PPE in a trade in is?

Answer 23

The PPE is measured in the order of priority:
1. Fair value of the asset given plus cash paid
2.) Trade in value of asset given plus cash payment

Question 24

True or False: The IFRS adresses donation or contribution.

Answer 24

False.

Question 25

The cost of PPE donated is?

Answer 25

measured at fair value

Question 26

When PPE is donated by a shareholder, how is it accounted for?

Answer 26

It is accounted for as a credit in donated capital account.

Question 27

When PPE is donated by a nonshareholder, how is it accounted for?

Answer 27

It is accounted for as income.

Question 28

True or False: The cost of a self-constructed asset is determine the same way as an entity would for an acquired asset.

Answer 28

True

Question 29

This means that the cost of the PPE together with the related accumulated depreciation shall be removed from the accounts.

Answer 29

Derecognition

Question 30

How should the gain or loss arising from derecognition accounted for?

Answer 30

It is accounted for in profit or loss.l

Question 31

When can an item of PPE be classified as held for sale?

Answer 31

If the asset is available for immediate sale in the present condition within one year from the date of classification as held for sale.

Question 32

When an item of PPE is now classified as held for sale, how is it accounted for?

Answer 32

It is now accounted for as current assets under inventory and is removed from PPE.

Question 33

True or False: A noncurrent asset classified as held for sale shall not be depreciated.

Answer 33

True