Assignment
PART A
Answer the five Multiple Choice questions that follow. There is ONE correct answer to each question, worth 2 marks.
Question 1
Lion Airline has purchased a budget airline and is discussing the way in which it should depreciate the aircraft as aircraft have a lifespan of 10 years, engines have a lifespan of seven years and tyres have a lifespan of 18 months. The aircraft should be depreciated on a straight-line basis over-
A. Seven years useful life of the engine, 1.5 years useful life of the tyres, and 10 years useful life applied to the balance
B. Seven years useful life
C. 1.5 years useful life
D. 10 years composite useful life
Question 2
An entity owns a fleet of company cars and executive vehicles, and has other property and equipment in order to service the fleet. It decided to revalue some of its property, plant and equipment. Which one of the following options complies with IAS 16?
A.Revalue only the cars and not the executive vehicles
B.Revalue only those parts of the fleet that have increased in value
C.Revalue only one-half of each class of property, plant and equipment
D.Revalue an entire class of property, plant and equipment
Question 3
An entity manufactures components for the car industry and uses self-made tools, which it continually develops. Costs of tooling are depreciated over four years and the tools are manufactured in its one factory, where 4% of the space is allocated to development. The factory depreciation charge should -
A.Be allocated on the basis of 4% per annum and added to the cost of the tooling
B.Be allocated on the basis of 1% per year for four years to the cost of the tooling
C.Not be allocated to the cost of the tooling
D.Be allocated on the basis of the value of the tools compared with the factory output to the cost of the tooling
Question 4
An entity operates a chain of hotels and is proposing to stop depreciating the hotel equipment and expense the cost of replacement each year. The entity should -
A. Not capitalise groups of assets and expense them
B. Not capitalise groups of assets and expense the replacement cost
C. Capitalise groups of assets but not depreciate them
D. Capitalise all assets with a useful life of more than one year and depreciate them
Question 5
IAS 16 requires a revaluation surplus resulting from initial revaluation of PPE to be treated in one of the following ways:
A. Credited to long-term provisions and added to the PPE
B. Debited to the class of PPE that is being revalued and credited to a equity
C. Released to the income statement over the life of the PPE
D. Credited to retained earnings as an unrealised gain
PART B
Using the style of question form Part A, i.e. multiple choice questions with five alternative questions of which one is correct, write THREE multiple choice questions testing knowledge of:
A. Recognition of PPE
B. Measurement after recognition
C. Depreciation
The work you submit for Part B should clearly identify the correct answer and give the appropriate feedback for each answer. You may set a question requiring calculations.
PART C
Write a 1000 word (+ 10%) essay in accordance with the requirement:
"The principal issues in IAS 16 are the recognition of the assets, determination of their carrying amounts and the depreciation charges and impairment losses to be recognized in relation to them". Discuss how these issues are dealt in this standard.