IAsgn7.docx
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IAsgn7.docx
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IAsgn7
LESSON7
Assignment
Question1(15marks)
Multiplechoice(1½markseach)
Note:
Formultiple-choicequestions,selectthebestanswer.Answereachquestionbygivingthenumberofyourchoice.Forexample,if
(2)isthebestanswerforpart(a),write(a)
(2)asyouranswer.Ifyouprovidemorethanoneanswerforaquestion,thatquestionwillnotbemarked.Incorrectanswerswillbemarkedaszero.Nomarkswillbeawardedforanyexplanationsyoumayoffer.
a.Whichofthefollowingisassociatedwithfixedassets?
1)Currentassets
2)Usedinoperations
3)Landheldforfutureexpansion
4)Investments
1)Incorrect.Currentassetsareassetsbutacategorydistinctfromfixedassets.
2)Correct.Fixedassetsareusedinoperationsforthepurposeofgeneratingrevenues.
3)Incorrect.LandheldforfutureexpansionisanassetbutitisshownundertheheadingofInvestments,notFixedassets.
4)Incorrect.InvestmentsareassetsbutacategoryseparatefromFixedassets.
b.Whichofthefollowingbestdescribesdepreciation?
1)Measuresthedeclineinvalueofanasset
2)Measuresphysicaldeteriorationofanasset
3)Istheprocessofallocatingtoexpensethecostofaplantandequipmentassets
4)Representsthetotaldeclineinvalueofanasset
1)Incorrect.Referto(3).
2)Incorrect.Referto(3).
3)Correct.Depreciationistheprocessofallocatingtoexpensethecostofaplantandequipmentasset.
4Incorrect.Referto(3).
c.Whichofthefollowinggroupsofcostsshouldbeincludedaspartofthecostofland?
1)Purchaseprice,assessmentsbylocalgovernments,costsofremovingexistingbuildings
2)Purchaseprice,interestonbankloanpaidoveritsfive-yearterm,costsofremovingexistingbuildings
3)Purchaseprice,insuranceduringconstructionofbuildingontheland,assessmentsbylocalgovernments
4)Purchaseprice,interestonbankloanpaidoveritsfive-yearterm,assessmentsbylocalgovernments
1)Correct.Thefollowingcostsshouldbeincludedaspartofthecostofland:
purchaseprice,assessmentsbylocalgovernments,costsofremovingexistingbuildings
2)Incorrect.Interestonbankloanpaidoveritsfive-yeartermisafinancingcostandnotincludedaspartofthecostofland.
3)Incorrect.Insuranceduringconstructionofbuildingonthelandisacostofthebuildingandnotacostoftheland.
4)Incorrect.Interestonbankloanoveritsfive-yeartermisafinancingcostandnotincludedaspartofthecostofland.
d.Whatisthedouble-declining-balancemethod?
1)Themaximumamountallowedforcapitalexpenditures
2)Themethodofdepreciationusedfortaxpurposesbasedonthestraight-linemethod
3)Anaccelerateddepreciationmethod
4)Themethodofdepreciationusedfortaxpurposesbasedontheactualusageofacapitalasset
1)Incorrect.Referto(3).
2)Incorrect.Referto(3).
3)Correct.Thedouble-declining-balancemethodisanaccelerateddepreciationmethod.
4)Incorrect.Referto(3).
e.AbbasPerfumerypurchasedpropertyfor€200,000.Thepropertyincludedabuilding,parkinglotandtheland.Onthedateofpurchase,thebuildingwasvaluedat€130,000;thelandat€80,000andtheparkinglotat€20,000.Atwhatvalueshouldthelandberecordedatintheaccountingrecords?
1)€69,565
2)€72,728
3)€80,000
4)€113,044
1)Correct.
AllocationAppraisedValuesCalculations
Building€113,044€130,000130,000/230,000200,000=113,044
Parkinglot17,39120,00020,000/230,000200,000=17,391
Land69,56580,00080,000/230,000200,000=69,565
Totals€200,000€230,000
2)Incorrect.Referto
(1).
3)Incorrect.Referto
(1).
4)Incorrect.Referto
(1).
f.CreekConstructionpurchasedamachinethathadafairvalueof€26,000.Ittradedinanoldmachinefora€9,000trade-inallowanceandpaidthebalanceincash.Theoldmachinecost€24,000andhadaccumulateddepreciationof€16,000.Whatisthebookvalueofthenewasset?
1)€21,800
2)€26,000
3)€25,000
4)€29,800
1)Incorrect.Referto(3).
2)Incorrect.Referto(3).
3)Correct.Thebookvalueofthenewassethastobe€26,000.Thetransactionmusthavehadcommercialsubstancesincethecashexchangedwas€17,000.Therefore,thejournalentrytorecordtheexchangefollows:
Machine(new)26,000
Accumulateddepreciation,machine(old)16,000
Machine(old)24,000
Cash17,000
Gainontrade-inofoldmachine1,000
4)Incorrect.Referto(3).
g.Whichdepreciationmethodproduceslargerdepreciationchargesduringtheearlyyearsofanasset'slifeandsmallerchargesinthelateryears?
1)Bookvaluedepreciation
2)Straight-linedepreciation
3)Units-of-productiondepreciation
4)Double-decliningbalance
1)Incorrect.Bookvaluedepreciationisnotadepreciationmethod.
2)Incorrect.Straight-linedepreciationproducesequalamountsofdepreciationchargesduringthelifeoftheasset.
3)Incorrect.Units-of-productiondepreciationproducesdepreciationthatvariesbasedontheasset’suseage.
4)Correct.Double-decliningbalanceproduceslargerdepreciationchargesduringtheearlyyearsofanasset’slifeandsmallerchargesinthelateryears.
h.CreekConstructionexchangedapostholediggerforanewmachine.Theoldmachinecost€14,000andthenewonehadafairvalueof€19,000.Theoldmachinehadaccumulateddepreciationof€12,000.CreekConstructionreceiveda€500tradeinallowancefortheoldmachineandpaidthebalanceincash.Whatamountofgainorlossshouldbeenteredintotheaccountingrecords,assumingthatthetransactionhascommercialsubstance?
1)€0
2)€500gain
3)€1,500loss
4)€1,500gain
1)Incorrect.Referto(3).
2)Incorrect.Referto(3).
3)Correct.Alossof€1,500shouldbeenteredintotheaccountingrecordsbasedontheentryrecordedatthetimeoftheexchangewhichfollows(assumingthatthefairvalueoftheoldmachineisnotknown):
Machine(new)19,000
Accumulateddepreciation,machine(old)12,000
Lossonexchange1,500
Cash18,500
Machine(old)14,000
4)Incorrect.Referto(3).
i.InuvikMiningInc.purchasedamineraldepositfor€900,000.Itexpectsthepropertytoproduce1,200,000tonesoforeandtohavenoresidualvalue.In20X6,Inuviksold85,000tonesofthe93,000tonesmined.Howmuchdepletionexpenseshouldbereportedontheincomestatementfor20X6?
1)€63,750
2)€69,750
3)€113,333
4)€124,000
1)Correct.€900,000/1,200,000=€0.75depletionexpensepertonneofmineraldeposit;€0.7585,000*tonnessold=€63,750depletionexpensereportedontheincomestatementfor20X6.
*Note:
93,000tonnesofmineraldepositwereminedbutonly85,000tonnesweresoldthereforedepletionontheincomestatementisbasedonthe85,000tonnessold.Theremaining8,000tonnes(93,000–85,000)areshownonthebalancesheetasinventory;therelateddepletionof€6,000(8,000tonnes€0.75/tonne)beingincludedininventory.
2)Incorrect.Referto
(1).
3)Incorrect.Referto
(1).
4)Incorrect.Referto
(1).
j.OnApril3,20X7,RainbowStudiospurchasedapatentfor€56,000.Thepatent’sremaininglegallifeis7yearsandRainbowStudiosestimatesthatthepatentwillbeusefulforanother4years.WhatisthecorrectadjustingentrytorecordamortizationofthepatentonDecember31,20X7?
1)AmortizationExpense—Patent6,000
AccumulatedAmortization—Patent6,000
2)AmortizationExpense—Patent8,000
AccumulatedAmortization—Patent8,000
3)AmortizationExpense—Patent10,500
AccumulatedAmortization—Patent10,500
4)AmortizationExpense—Patent14,000
AccumulatedAmortization—Patent14,000
1)Incorrect.Referto(3).
2)Incorrect.Referto(3).
3)Correct.€56,000/4years*=€14,000/year9/12**=€10,500amortizationexpensefor20X7.ThecorrectadjustingentrytorecordamortizationofthepatentonDecember31,20X7istherefore:
AmortizationExpense—Patent10,500
Accumulatedamortization—Patent10,500
*Intangibleassetsareamortizedovertheirusefullife,whichinthiscaseis4years.Thelegallifeisirrelevant.
**BecausethepatentwasacquiredonApril3,20X7,apartialyearofamortizationisrecordedin20X7.
4)Incorrect.Referto(3).
Question2(15marks)
Markallocation:
Balanceofaccumulateddepreciation,December31,20X6:
3markseach(total9marks);Depreciationexpensefor20X7:
1markeach(total3marks);Balanceofaccumulateddepreciation,December31,20X7:
1markeach(total3marks)
AtDecember31,20X6NeopolitanServicing’sbalancesheetshowedcapitalassetinformationasdetailedintheschedulebelow.Neopolitancalculatesdepreciationtothenearestwholemonth.
CostInformation
Depreciation
Description
DateofPurchase
Depreciation
Method
Cost
Salvage
Life
BalanceofAccum.Dep.
Dec.31,20X6
Dep.Expensefor20X7
BalanceofAccum.Dep.
Dec.31,20X7
Officeequipment
March27/X3
Straight-line
€52,000
€14,000
10yr.
Machinery
June4/X3
Double-decliningbalance
€275,000
€46,000
6yr.
Truck
Nov.13/X6
Units-of-production
€113,000
€26,000
250,000km.
Required
Completetheschedule.
CostInformation
Depreciation
Description
DateofPurchase
Depreciation
Method
Cost
Salvage
Life
BalanceofAccum.Dep.
Dec.31,20X6
Dep.Expensefor20X7
BalanceofAccum.Dep.
Dec.31,20X7
Officeequipment
March27/X3
Straight-line
€52,000
€14,000
10yr.
14,2501
3,8002
18,0503
Machinery
June4/X3
Double-decliningbalance
€275,000
€46,000
6yr.
209,3624
19,6385
229,0006
Truck
Nov.13/X6
Units-of-production
€113,000
€26,000
250,000km.
4,8727
23,6648
28,5369
1.(52,000–14,000)/10=3,800/year×39/12=14,250
2.(52,000–14,000)/10=3,800/year
3.14,250+3,
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