1. Depletion is normally computed using the straight-line method.

True

False

2. S1: Government grant in recognition of specific costs is recognized as income over the same period as the related expense. S2: Government grant that becomes receivable as compensation for expenses or losses already incurred should be recognized as income of the period in which it becomes receivable.

a. S1 is TRUE and S2 is FALSE

b. S1 is FALSE and S2 is TRUE

c. Both statements are TRUE

d. Both statements are FALSE

3. A method which excludes residual value from the base for the depreciation calculation in the earlier years is

a. Straight line

b. Sum of years' digits

c. Double declining balance

d. Output method

4. In which of the following situations is the production method of depreciation most appropriate?

a. An asset's service potential declines with use

b. An asset's service potential declines with time

c. An asset is subject to rapid obsolescence

d. An asset incurs increasing repairs and maintenance

5. If the qualifying asset is financed by general borrowing, the capitalizable borrowing cost is equal to

a. Actual borrowing cost incurred

b. Total expenditures on the asset multiplied by a capitalization rate

c. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is lower

d. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred, whichever is higher

6. S1: Government grant related to depreciable asset is usually recognized as income over the useful life of the asset and in proportion to the depreciation of the asset. S2: Government grant related to non-depreciable asset that requires fulfillment of certain conditions should be recognized as income immediately.

a. S1 is TRUE and S2 is FALSE

b. S1 is FALSE and S2 is TRUE

c. Both statements are TRUE

d. Both statements are FALSE

7. Which of the following subsequent expenditures should be expensed immediately?

a. Expenditure made to increase the efficiency or effectiveness of an existing asset

b. Expenditure made to extend the useful life of an existing asset

c. Expenditure made to maintain an existing asset in operating condition

d. Expenditure made to add new asset

8. Which expenditure may properly be capitalized?

a. Expenditure for massive advertising campaign

b. Insurance on plant during construction

c. Research and development related to a long-term asset giving the entity a competitive market advantage

d. Title search and other legal cost related to a piece of property which was not acquired

9. Which statement is the assumption on which straight line depreciation is based?

a. The efficiency of the asset decreases in later years

b. Service value declines as a function of time rather than use

c. Service value declines as a function of obsolescence

d. Physical wear and tear are more important than economic obsolescence

10. If an entity purchased a lot and an old building and demolished the old building to make room for the construction of a new building, the proper accounting treatment of the allocated carrying amount of the old building would depend on

a. The significance of the cost allocated to the building in relation to the combined cost of the lot and building

b. The length of time for which the building was held prior to demolition

c. The contemplated future use of the old building

d. The intention of management for the property when the new building was constructed

11. The sum of years' digits method

a. Results in residual value being ignored

b. Means the denominator is the number of years remaining at the beginning of the year

c. Means the carrying amount should not be reduced below residual value

d Results in an increasing depreciation charge

12. When an entity acquired land with an old building and immediately demolished the old building so that the land can be used for the construction of a plant, the cost incurred to demolish the old building should be

a. Expensed as incurred

b. Added to the cost of the plant

c. Added to the cost of the land

d. Amortized over the estimated time period between the demolition of the building and the completion of the plant

13. Which of the following assets could be treated as qualifying asset for the purpose of capitalizing borrowing costs?

a. Investment property

b. Investment in financial instrument

c. Inventory that is manufactured or produced in large quantity on a repetitive basis

d. Biological asset