PAS 16 PROPERTY PLANT AND EQUIPMENT

1. The “benchmark” valuation of property, plant and equipment in the balance sheet of an enterprise is
a. At revalued amount, which equal to the fair value at the date of revaluation less any subsequent accumulated
depreciation and subsequent accumulated impairment loss.
b. Cost of asset, or other amount substituted for cost in the financial statements less its residual value.
c. Amount of cash or cash equivalent paid or the fair value of other consideration given to acquire the asset at the time of
its acquisition or construction.
d. Amount which the asset is recognized in the balance sheet after, deducting any accumulated depreciation and
accumulated impairment losses.

2. The cost of property, plant and equipment comprises all of the following except:
a. Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and
rebates.
b. Cost of opening a new facility or introducing a new product or service.
c. Any cost directly attributable to bringing the asset to the condition or location necessary for it to be capable of
operating in the manner intended by management
d. The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located and
for which the entity has a present obligation.

3. When an item of property, plant and equipment is acquired by issuing debt securities, which is the best basis for
establishing the historical cost of the acquired asset?
a. Face value of the bonds issued c. Fair value of the asset received
b. Historical cost of the asset received d. Fair value of the bond issued

4. Major spare parts and standby equipment which are expected to be used over a period of more than one year should
be classified as
a. Inventory b. Property, plant and equipment c. Supplies d. Expenses

5. The term “betterment” refers to

a. Expenditures made for new facilities, which increase “capacity”
b. Expenditures made to improve existing facilities by increasing “capacity”
c. Expenditures made to help continuity of service capacity
d. Expenditures made to restore “capacity” after abandonment of retirement.

6. The most common method of recording depletion for accounting purposes is the
a. Percentage of depletion method c. Production or output method
b. Straight line d. Decreasing charge method

7. An entity imported machinery to install in its new factory premises before year end. However, due to circumstances
beyond its control, the machinery was delayed by a few months but reached the factory premises before year-end. While
this was happening, the entity learned from the bank that it was being charged interest on the loan it had taken to fund
the cost of the plant. What is the proper treatment of freight and interest expense?
a. Both expenses should be capitalized.
b. Interest may be capitalized but freight should be expensed
c. Freight charge should be capitalized but interest cannot be capitalized under these circumstances
d. Both expenses should be expensed

8. Under IAS 16 Property, Plant and Equipment, an entity may choose to measure assets using the revaluation model. If
this model is chosen, revaluation increments are recognized:
a. in profit or loss of the period in which the revaluation is undertaken;
b. as a deferred credit in the balance sheet;
c. directly in equity;
d. as an increase in the balance of the relevant accumulated depreciation account.

9. In relation to an asset revaluation surplus, an entity:

a. is not able to use this surplus for the payment of future dividends;
b. is able to use this surplus for the payment of future dividends;
c. is not able to transfer this surplus to any other reserve account;
d. can transfer the surplus to the income statement when the asset is disposed of.

10. The cost of land does not include

a. Costs of grading, filling, draining, and clearing
b. Costs of removing old buildings
c. Costs of improvements with limited lives
d. Special assessments

11. Under which of the following depreciation methods is it possible for depreciation expense to be higher in the later
years of an asset’s useful life?
a. Straight- line
b. Activity method based on units of production
c. Sum-of-the-years’ digits
d. Declining balance

12. Which of the following is not a major characteristic of a plant asset?

a. Possesses physical substance c. Acquired for use
b. Acquired for resale d. Yields services over a number of years

13. The cost of land typically includes the purchase price and all of the following costs except
a. Grading, filling, draining, and clearing costs
b. Street lights, sewers, and drainage systems cost
c. Private driveways and parking lots
d. Assumption of any liens or mortgages on the property

14. The sale of a depreciable asset resulting in a loss indicated that the proceeds from the sale were
a. Less than current market value
b. Greater than cost
c. Greater than book value
d. Less than book value

15. A change in the estimated useful life of a building

a. Is not allowed by generally accepted accounting principles
b. Affects the depreciation on the building beginning with the year of the change
c. Must be handled as a retroactive adjustment to all accounts affected, back to the year of the acquisition of the building
d. Creates a new account to be recognized on the income statement reflecting the difference in net income up to the
beginning of the year of the change

16.

ANSWERKEY:
1. C
2. B
3. C
4. B
5. B
6. C
7. C
8. C
9. B
10. C
11. B
12. B
13. C
14. D
15. B
16.