Question

Choose "true" or "false" as applicable for each of the following items as they pertain to disposals of plant assets. [Choose] I Choo If the asset is sold, a gain will occur if the sell price of the asset exceeds the book value of the asset. I Choose1 If the asset is sold, a loss will occur if the book value of the asset exceeds the sell price of the asset. If the asset is discarded or retired, a a [Choose ] loss will occur regardless of the book value of the asset. If the asset is discarded or retired, it is typically possible for a gain to occur. [Choose] [Choose ] Gains and losses are deemed to result from normal operating activities o e Ô Pia DELL

Answer 1

True or False applicable for each item pertaining to :

Disposal of Plant assets.

1. If the asset is sold, again will occur if the sale price of the asset exceeds the book value of the asset. It is true because the sale value of asset is more than the book value.
2. If the asset is sold, a loss will occur if the book value of the asset exceeds the sale price of the asset. It is true because the sale value of the asset is less than the book value.
3. If the asset is discarded or retired, a loss will occur regardless of the book value of the asset. Yes, it is true and the accounting treatment will lose on disposal of assets reflect in Profit and Loss account.
4. If the asset is discarded or retired, it is typically possible for again to occur. No, it is false because the book value must be there in the Balance sheet after the deduction of depreciation.
5. Gains and losses are deemed to result from normal operating activities. Yes, it is true because profit/loss occurred due to the disposal of the asset and treated in Profit and Loss Account which will reflect operating profit/ loss.

Changes in depreciation estimates:

1. Since estimates are inherent in all depreciation calculations, changes in estimates require no action be taken. It is true because estimate changes are an inherent and continual part of the estimation process.
2. Changes in estimates require that depreciation expense for prior periods be recalculated and restarted. No, it is false because the prior periods don’t need to be started due to change in the useful life estimates that do not represent an accounting error and it is a continual part of the estimation process.
3. Changes in estimates require that depreciation expense for the current and future periods be recalculated. No, it is False recalculation is not required because a new depreciation rate occurs at the end of the accounting period.
4. The current book value of an asset should be used to recalculate depreciation expense. No, it is False because the current book value of an asset is calculated the prescribed rate at the end of the year.
5. The revised Total useful life should be used to recalculate depreciation expense. No, it is False because the new depreciation rate is recorded at the end of the accounting period.

Pertain to Depreciation method:

1. Accelerated depreciation is better suited for a situation where asset usage varies each period. It is true because a higher depreciation deduction today a business will reduce its current tax bill and helpful for new business and having short term cash flow problems.
2. Accelerated depreciation depreciates assets in fewer periods than other depreciation methods. It is true.
3. Units of activity are better suited for situations where asset usages are consistent with each period. It is true.
4. In an asset, the first year of depreciation will generate a higher depreciation expense than accelerated depreciation. It is False because the book value of the assets loses at a faster rate in accelerated depreciation than the traditional straight line method.
5. In an asset, the final year of depreciation will generate a higher depreciation expense than accelerated depreciation. It is false because the accelerated depreciation is faster than the traditional method.

Debited to the plant asset ledger account:

1. No, it is False.
2. Yes, it is true.
3. No, it is false
4. No, it is False
5. No, it is False
6. Yes it is true
7. No, it is false.