QUIZ 6 CFAS - MIDTERM

The cost of land usually includes all of the following except

• Commission related to acquisition

• Property tax after date of acquisition

• Property tax to date of acquisition

• Cost of survey

The single cost acquiring land and an unusable old building is

• Charged to the land only.

• Charged to the building only.

• Allocated between land and building based on relative fair-value.

• Allocated between land and building based on carrying amount.

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

• Expensed as incurred

• Added to the cost of the plant

• Added to the cost of the land

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

An entity purchased land to be used as an investment property. Timber was cut from the site so development of the land could begin. The proceeds from the sale of the timber should be

• Classified as other income

• Credited to retained earnings

• Deducted from the cost of the land

• Classified as deferred income and amortized over five years

The term “betterment” refers to

• An expenditure made for new facilities which increase capacity.

• An expenditure made to restore capacity after abandonment or retirement.

• An expenditure made to improve existing facilities by increasing capacity.

• An expenditure made to help insure continuity of service capacity.

Which of the following would ordinarily be treated as a revenue expenditure rather than a capital expenditure?

• Cost of servicing and overhaul to restore or maintain the originally assessed standard of performance.

• The replacement of a major component of building.

• An addition to an existing building.

• Cost of improvement that is expected to provide discernible future benefit.

Which of the following costs should not be capitalized?

• Replacement of roof of building every 15 years.

• Cost of site preparation

• Installation and assembly cost

• Replacement of small spare parts annually

Which of the following subsequent expenditures should be expensed immediately?

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

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

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

• Expenditure made to add new asset.

Which statement is incorrect with respect to depreciation?

• The depreciation method shall reflect the pattern in which the asset’s economic benefits are consumed by the entity.

• Depreciation of an asset begins when it is available for use or when it is in the location and condition necessary for the intended use.

• Depreciation cases at the earlier between the date the asset is classified as held for sale and the date the asset is derecognized.

• Depreciation is not recognized if the fair value of an asset exceeds carrying amount.

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

• An asset’s service potential declines with use.

• An asset’s service potential declines with the passage of time.

• An asset is subject to rapid obsolescence.

• An asset incurs increasing repairs and maintenance with use.