Chapter 4

Question 1

IAS 16?

Answer 1

Tangible non-current assets:
-When to recognise them
-How to depreciate
-How to record carrying value.

Question 2

Definition of ‘property, plant and equipment’?

Answer 2

“Tangible assets held for use in the production or supply of goods and services, which are expected to be used for more than one period”.

Question 3

Criteria for recognising assets? (2)

Answer 3

1 It is probable that future economic benefits will flow to the entity
2 the cost of the asset must be reliably measured.

Question 4

What can be included in historic cost? (5)

Answer 4

1 Cost of site preparation
2 delivery and handling costs
3 installation costs
4 professional fees
5 testing costs

Question 5

Definition of ‘fair value’?

Answer 5

“The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date”.

Question 6

Definition of ‘depreciation’?

Answer 6

“The systematic allocation of the depreciable amount of an asset over its useful life”.

Question 7

Common methods of depreciation? (2)

Answer 7

1 Straight-line
2 diminishing (reducing) balance

Question 8

IFRS 16?

Answer 8

Recognition, measurement, presentation and disclosure of leases.

Question 9

What is a lease?

Answer 9

A contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration.

Question 10

IAS 36?

Answer 10

Impairment of assets due to reasons other than depreciation.

Question 11

IAS 38?

Answer 11

Intangible assets.

Question 12

Definition of ‘intangible asset’?

Answer 12

“An identifiable non-monetary asset without physical substance”.

Question 13

Definition of ‘amortisation’?

Answer 13

“The systematic allocation of the depreciable amount of an intangible asset over its useful life”.

Question 14

Criteria for development costs not being treated as an expense? (6)

Answer 14

1 probable future economic benefits that can be demonstrated
2 intention to complete development
3 resources available are sufficient for completion
4 ability to use or sell the product after completion
5 technically feasible to complete, use and sell
6 expenditure can be reliably measured

Question 15

Definition of ‘goodwill’?

Answer 15

“The amount paid over and above the fair value of the identifiable net assets and liabilities acquired”.

Question 16

IAS 2?

Answer 16

Inventories; prohibition of LIFO.

Question 17

How must inventories be valued under IAS 2?

Answer 17

The lower of cost and net realisable value.

Question 18

Definition of ‘short term’ lease?

Answer 18

A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less and does not contain a purchase option.

Question 19

Definition of ‘Recoverable Amount’?

Answer 19

The higher of fair value less costs to sell, and value in
use

Question 20

When does impairment occur?

Answer 20

The asset is only impaired if the carrying value is higher
than the recoverable amount: