U4, AOS 1 - Trade in of a NCA

Question 1

What is a non-current asset?

Answer 1

A non-current asset is a long-term investment that is not expected to be converted into cash within one year.

Question 2

What does ‘trade-in’ refer to in the context of non-current assets?

Answer 2

Trade-in refers to the process of exchanging an old non-current asset for credit towards the purchase of a new asset.

Question 3

True or False: Non-current assets can include property, plant, and equipment.

Answer 3

True

Question 4

What is the primary purpose of trading in a non-current asset?

Answer 4

The primary purpose is to reduce the cost of acquiring a new asset by applying the trade-in value of the old asset.

Question 5

Fill in the blank: The trade-in value of a non-current asset is typically determined by its _____ condition and market value.

Answer 5

current

Question 6

Which of the following is an example of a non-current asset that can be traded in: A) Inventory B) Equipment C) Accounts Receivable?

Answer 6

B) Equipment

Question 7

True or False: A trade-in transaction affects the depreciation calculation of the new asset.

Answer 7

True

Question 8

Short Answer: What is one benefit of trading in a non-current asset?

Answer 8

One benefit is obtaining a lower purchase price for the new asset.

Question 9

True or False: The trade-in value is always equal to the book value of the asset being traded in.

Answer 9

False

Question 10

What is the effect of trading in a non-current asset on cash flow?

Answer 10

It may improve cash flow by reducing the upfront cash payment required for the new asset.

Question 11

Multiple Choice: Which of the following is NOT typically a reason for trading in a non-current asset? A) Upgrade technology B) Reduce maintenance costs C) Increase inventory levels

Answer 11

C) Increase inventory levels

Question 12

Fill in the blank: When trading in a non-current asset, companies must evaluate the _____ of the old asset.

Answer 12

fair value

Question 13

True or False: Trading in a non-current asset can result in a gain or loss on disposal.

Answer 13

True

Question 14

What must a company do with any gain or loss from the trade-in of a non-current asset?

Answer 14

Record it in the financial statements.

Question 15

Short Answer: Name one type of non-current asset that is commonly traded in.

Answer 15

Vehicles

Question 16

True or False: Trade-ins can only occur when purchasing new assets.

Answer 16

False

Question 17

Multiple Choice: What is a common factor that influences the trade-in value? A) Age of the asset B) Location of the company C) Market trends

Answer 17

A) Age of the asset