Australian Financial Accounting 6th Edition Deegan Test Bank

Australian Financial Accounting 6th
Edition Deegan Test Bank

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Chapter 09 - Accounting for heritage assets and biological
assets
1. Concept of control is problematic for heritage assets but not so for biological assets.
True False
2. AASB 101 requires heritage assets to be disclosed separately on the statement of financial position.
True False
3. In accordance with AASB 141 "Agriculture" biological assets may be classified as part of property, plant and
equipment in the statement of financial position.
True False
4. Demand for financial information on heritage assets has not been clearly established.
True False
5. An agricultural produce is no longer re-measured to fair value because it is accounted for using the lower of
cost or recoverable amount.
True False
6. "Wine" is classified as a processed product of an agricultural produce "grapes" and is still within the scope of
AASB 141 "Agriculture".
True False
7. Heritage assets may be defined as intangible assets that a community intends preserving because of cultural,
historic or spiritual associations:
True False
1
8. According to AAS 29 government departments should put a financial value on their heritage assets for the
purpose of disclosure in general-purpose financial reports:
True False
9. A concern associated with the capitalisation of heritage assets is that it will lead to financial statement users
believing that the assets could be readily sold when this is not the case:
True False
10. Research has indicated that in general large arts institutions in the English-speaking world value their
collections as assets and report them in their financial statements:
True False
11. The requirements of AAS 29 are out of line with one of the views outlined in the International Accord on
the Value of Natural Science Collections:
True False
12. In order to apply the contingent-valuation method to heritage assets it is necessary to decide whether or not
leisure time should be charged at an individual's wage rate:
True False
13. Unlike heritage assets, there has always been very clear guidance on the treatment of biological assets given
their importance in Australia.
True False
14. Biological assets are defined in AASB 141 as 'living animal or plant':
True False
15. AASB 141 prohibits the classification of biological assets as current or non-current:
True False
2
16. AASB 141 does not require gains to be broken down into volume changes and price changes as
recommended by Roberts, Staunton and Hagen:
True False
17. AASB 141 requires that biological asset be recognised at cost until the asset is sold.
True False
18. AASB 141 covers agricultural activities such as deep sea fishing.
True False
19. Features common to heritage assets are that they typically:

A. Are unique, are aspects of the natural environment (for example, parks), and cannot be replaced.
B. Have no alternative use, cannot be replaced, and generate negative net cash flows.
C. Are self-generating, individually unique, and generate negative net cash flows.
D. Have no alternative use, cannot be replaced, and generate positive net cash flows.
E. None of the given answers.
20. One of the arguments against recording heritage assets as assets in the financial statements is that they
typically generate negative net cash flows. SAC 4 argues in response to this that:
A. Economic benefits as defined in SAC 4 extend beyond the mere financial benefits that an entity chooses to
extract from its assets.
B. These assets benefit the reporting entities, enabling them to meet their objectives of providing the needed
services to beneficiaries.
C. Meeting the needs of beneficiaries in a broad sense provides an economic benefit to society as a whole that
should be captured through financial measurement in the annual reports of the entity.
D. Heritage assets may in many cases not meet the definition of generating future economic benefits for the
entity that controls them; however, in the cases where there is evidence of positive future cash flows these
should be recorded as assets.
3
21. A contentious issue with heritage assets is valuation. This is a concern because:
A. For some heritage assets no market really exists to determine fair value.
B. As heritage assets are by their nature unique, it is difficult to compare them with similar assets.
C. Those entities charged with responsibility for heritage assets usually don't have the discretion to dispose of
them, so 'market value' has no relevance.
D. Heritage assets generally create negative cash flows and so using discounted cash flows to establish value is
impractical.
E. All of the given answers.
22. AAS 29 states that the measurement basis of infrastructure and heritage assets should be:
A. Depreciated historical cost.
B. Written current cost.
C. Depreciated fair value.
D. Recoverable amount.
23. A broader issue raised by the measurement of heritage assets in the financial statements of government
entities is the appropriateness of the AASB Framework Project for not-for-profit entities. Among other things,
writers have argued that:
A. It is not clear that the social objectives of not-for-profit enterprises are compatible with the approach to
accountability implied in the qualitative disclosures the Conceptual Framework Project gives rise to.
B. The heritage 'assets' held by not-for-profit entities should be de-accessioned and valued at cost if they are to
fit within the definitions of assets in the Conceptual Framework. Where this is not feasible they fall outside the
Conceptual Framework's objectives.
C. Accrual accounting concepts form the basis of the Conceptual Framework Project. These concepts are
fundamentally based on the historical-cost approach to accounting and are therefore flawed in relation to
heritage assets, which clearly should be valued using a market-based measure.
D. It is not clear that 'assets' held by not-for-profit entities should be defined in terms of their probability of
generating future economic benefits.
4
24. A recognition criterion for assets is that the entity reporting them should have control (but not necessarily
ownership) of them. Heritage assets often have features that make the establishment of control difficult. These
features include:
A. The interrelationships between legislation and regulations governing heritage assets may make it difficult to
establish which government agency has ultimate control over the asset.
B. It can be difficult to control access to a range of heritage assets.
C. The government agency with responsibility for the heritage asset may be restricted in what it may do with the
asset.
D. The interrelationships between legislation and regulations governing heritage assets may make it difficult to
establish which government agency has ultimate control over the asset; and the government agency with
responsibility for the heritage asset may be restricted in what it may do with the asset.
25. Measuring the value of heritage assets to be reported in the balance sheet raises difficulties because:
A. While reliable valuations may be made, the cost of maintaining and improving the value of the assets is so
high that the capitalisation of these amounts often distorts the valuations.
B. The cost of heritage assets is the most reliable measure, but because heritage assets may be very old their
carrying value will often be zero under the requirements of AAS 29.
C. Obtaining a reliable valuation for heritage assets is problematic because there will generally be no sales or
purchases and no valid market comparison to use.
D. The cost of obtaining detailed valuations by experts in the area of the specific type of heritage asset is
prohibitive for most government departments.
26. In accordance with the requirements of the AASB Framework, accounting standard setters should ensure
that the benefits from required disclosures exceed the costs incurred by entities in making them. The costs
associated with a disclosure are specified by the AASB Framework to include:
A. The cost of interpretation of the information.
B. The cost of dissemination of the information.
C. The cost of misdirection of resources where the information is not reliable.
D. The cost of interpretation of the information and the cost of misdirection of resources where the information
is not reliable.
5
27. Providing financial information about heritage assets:
A. Is important as it will benefit all users.
B. Is a requirement of AAS 29 which appears to be based on the assumption that only financial information is
relevant to report users.
C. Will result in wasted resources if demand for such information is limited.
D. Should be done only if the cost of providing the information exceeds the benefits.
28. Jaenicke and Glazer (1992) suggest an alternative approach to the one in AAS 29 for disclosures by
museums within a US context. The proposal is that:
A. They should present a summary by classes of items held in the collection that shows the cost of items held,
any purchases and the inflow of cash from sales of items from the collection and any grants received.
B. They should present a schedule of changes in the number of items in the collection, reconciling the beginning
and ending figures. The dollar figures for total current-period purchases, contributions and sales of collection
items should also be disclosed.
C. They should present a schedule of the nature and type of the heritage asset held and a summary of the cost to
maintain the collection in its current condition. Disclosures about the amounts received from the sale of items
and grants received should be provided as well as a statement of the number of items purchased and their cost.
D. They should present a summary statement showing how grants received and the proceeds from items sold
during the period were allocated to the purchase of additional items and the maintenance of the existing
collection. Amounts spent on administration and other overheads should be separately detailed to the extent that
they are material.
29. Arguments for the use of financial valuations of heritage assets to fulfil the accountability and performance
evaluation functions of accounting statement preparation include:
A. The funds contributed to government departments cannot be effectively tracked unless valuations of heritage
assets are included in financial statements.
B. Managers of heritage assets need to ensure that they maximise the value of the collections and maintain them
appropriately. Valuations of all assets provide an accurate performance measure in this regard.
C. In order to assess whether or not managers of collections have performed well it is necessary to have
financial valuations of the heritage assets held at the beginning and end of the period. Decisions to buy and sell
heritage assets can then be evaluated in the context of their impact on the quality of the entire collection.
D. Performance measurement will be more accurate because, for example, rate of return is calculated on total
asset base.
6
30. Parker (1996) has identified a number of quantitative and qualitative performance indicators that he argues
provide a broader scope of accountability for managers of heritage assets in museums. The indicators he has
proposed include:
A. The quality of experience of visitors.
B. The uses made of collections.
C. The number of visitors.
D. Both the uses made of collections and the number of visitors.
31. Methods that have been used to provide a valuation of heritage assets include:
A. Contingent-valuation method and the nominal or notional value.
B. Travel-cost method and adjusting the market values of nearby privately held properties.
C. The net present value of the adjusted cash-flow method and the arbitrary allocation of cost method.
D. Contingent-valuation method and the nominal or notional value and travel-cost method and adjusting the
market values of nearby privately held properties.
32. Contingent Valuation of Heritage will not be effective unless:

A. An accurate description of the item to be valued is given.
B. A sample of the society that knows the true value of the asset is chosen.
C. The asset to be valued is available for the public to view.
D. The asset can actually be purchased in an open market.
33. Examples of biological assets include:

A. Trees in a recreational park.
B. Aquaculture and fishery holdings.
C. Telecommunications and computer software.
D. Preserved fossilised remains.
7
34. AASB 141 excludes certain biological assets from its scope. To be included.
A. The living animal or plant must be capable of earning revenue.
B. The asset must be alive and may include organisms such as viruses.
C. The living animal or plant must be used in a commercial venture.
D. The living animal or plant may only be used within an agricultural activity.
E. The living animal or plant must be capable of earning revenue and the living animal or plant must be used in
a commercial venture.
35. Prior to the effective date for implementation of AASB 1037 (30 June 2001) the difficulties in classifying
self-generating and regenerating assets caused the use of a variety of practices among reporting entities. Those
classifications for self-generating and regenerating assets include:
A. Inventory.
B. Property plant and equipment.
C. Non-current inventory.
D. Regenerative assets.
36. Biological assets may be difficult to classify as current or non-current because:

A. The asset may unexpectedly become ill or die.
B. The value of the asset may change depending on management's intention.
C. The operating cycle of the entity may be unknown.
D. The same physical assets may have either a shorter or longer life span depending on management intention.
37. Roberts, Staunton and Hagen (1995) propose that biological assets be subject to a classification scheme that
differs from other assets. This scheme would require:
A. Biological assets to be grouped into one category and then subdivided into current and non-current groups.
B. The intent of management to be stated at acquisition date so that the assets can be properly classified.
C. These types of assets to be shown in a separate category of 'biological assets' and identified by subcategories.
D. Notes to be included in the accounts clearly identifying why a biological asset had been classified.
8
38. Valuations of forestry assets in Australia have been undertaken on:
A. An historical-cost basis.
B. A replacement and/or market-value basis.
C. Using net present values.
D. An historical-cost basis and a replacement and/or market-value basis.
E. An historical-cost basis, a replacement and/or market-value basis and using net present values.
39. Net present value (NPV) method has been considered as an alternative valuation technique to historical cost
for biological assets. The NPV method may be described as:
A. An accounting method for projecting the revenues and expenses associated with an asset or entity.
B. An economic concept based on the notion that an asset's value can be determined from its future cash flows.
C. An accounting concept based on the statement of cash flows to determine the present value of investments.
D. A finance technique for testing the efficiency of the market by comparing share prices to the discounted cash
inflows associated with the asset.
40. Difficulties applying the net present value method to forests include the need to estimate:
A. The time the trees will take to mature.
B. The volume yield and processing utility.
C. The costs associated with replanting should the forestry operation be considered a continuing activity.
D. The future transportation costs.
41. AASB 141 requires biological assets to be measured at:

A. The lower of cost and net realisable value.
B. Recoverable amount.
C. Current replacement cost.
D. Fair value less costs to sell.
42. AASB 141 states that where no active market exists fair value may be determined by:
A. The most recent market transaction price, irrespective of any changes to economic conditions.
B. Market prices for similar assets without adjustments to reflect differences.
C. Sector benchmarks expressed in relevant units for that type of asset.
D. Using net present values calculated at the current-market determined post-tax rate.
9
43. Where a biological asset is not separable from other assets:
A. The value of the biological asset should be included in the value of the other asset.
B. The value of the package of assets for which an active market exists should be used to assist in determining
the fair value of the biological assets.
C. The fair values of the non-biological assets should be subtracted from the package value.
D. The value of the package of assets for which an active market exists should be used to assist in determining
the fair value of the biological assets and the fair values of the non-biological assets should be subtracted from
the package value.
44. One approach to revenue recognition proposed for biological assets is to recognise volume changes as
revenue or expense but to treat price changes as an adjustment to equity through a reserve. Arguments that
support this approach include:
A. Price changes have not been realised and so should not be recognised in the income statement.
B. Treating price changes as a non-distributable reserve protects the operating capability of the entity.
C. The biological development of a self-generating and regenerating asset is clearly distinguishable and
separately measurable from changes in price.
D. The treatment should be equivalent to that used in other reporting standards such as AAS 25 'Financial
Reporting by Superannuation Funds'.
45. One approach to revenue recognition proposed for self-generating and regenerating assets is to recognise
volume changes as revenue or expense but to treat price changes as an adjustment to equity through a reserve.
Arguments against this approach include:
A. It is often impracticable to separate price and volume changes.
B. There is no precedent in accounting standards for the recognition of changes in market values as adjustments
to equity.
C. The total increase in value is the production for the period and it should be available for distribution to
owners.
D. The revenue for the period would not reflect the performance of management.
10
46. What treatment of revenue recognition is required by AASB 141?
A. Revenue should be recognised in the income statement on the sale of the asset. Losses should be recognised
as a result of a write-down to recoverable amount.
B. Changes in the net market values of biological assets that relate to volume changes must be recognised as
revenues or expenses as appropriate in the profit and loss statement.
C. Changes in the current replacement cost of biological assets should be treated as adjustments to the asset
revaluation reserve. Revenues should be recognised on the sale of the asset and matched against the
replacement cost of the asset sold.
D. Increments and decrements in the net market values of biological assets must be recognised as revenues or
expenses in the profit and loss statement for the financial year in which the increments or decrements occur.
47. What is the accounting treatment for a non-living product of a biological asset in accordance with AASB
141 "Agriculture"?
A. They are to be treated the same as all other biological assets and are to be valued accordingly.
B. They shall be measured at fair value less point-of-sale costs at the point of harvest and thereafter be covered
by AASB 102 "Inventory".
C. They become a special category of biological assets that should be valued at the lower of cost or market
value until sold.
D. They are no longer biological assets but are to be treated as current or non-current assets as appropriate,
based on management's intention for the product.
48. AASB 1037 and AASB 141 have been criticised on the grounds that:
A. Their affect is to overstate the payout ratio relative to companies in the US.
B. They emphasise reliability over relevance in asset measurement.
C. They limit the accounting methods available to report on these types of assets.
D. They will hinder the timely production of financial reports.
11
49. Which of the following statements is correct with respect to accounting for biological assets as required in
AASB 141:
A. A biological asset may initially be recognised at cost when market-determined prices or value are not
available and for which alternative estimates of fair value are not available.
B. If a biological asset is initially recognised at cost it should be measured at cost less any accumulated
depreciation.
C. A biological asset that was initially recognised at fair value less point-of-sale costs may subsequently be
recognised at cost when fair value less point-of-sale costs is no longer available.
D. A biological asset may initially be recognised at recoverable amount.
50. In accordance with AASB 141 a gain or loss may arise from:
A. subsequent measurement dates of a biological asset.
B. initial recognition of an agricultural produce.
C. initial recognition of a biological asset.
D. harvesting a biological asset.
51. Which of the following items are not within the scope of AASB 141 "Agriculture"?
A. Apple trees in a commercial orchard
B. Dried apples sold in supermarkets
C. Pine trees in a plantation forest
D. Harvested apples
E. All of the given answers
52. Which of the following are considered agricultural produce, hence should be reclassified to inventory?
A. Pigs held for reproduction
B. Recently planted vines
C. Sheep held for shearing wool
D. Harvested pine trees
E. None of the given answers
12
53. Nerang Orange Farms Ltd has orange tress which on 30 June 2009 had a fair value of $1,600,000. On 30
April 2010, oranges with an estimated market value of $300,000 were picked. The costs of picking, sorting and
packing paid in cash amount to $150,000. The oranges were sold on the same day for $310,000. An independent
valuation on 30 June 2006 report that the estimated fair value of the orange trees is $1,500,000. What is the
journal entry to recognise the harvest of oranges on 30 April 2010?
A.
Dr Inventory – Oranges $310,000

Cr Revenue – Harvest of Oranges $310,000
B.
CR Cash $150,000
C.
Cr Orange Farm (Asset) $310,000
D.
Dr Orange Farm (Asset) $300,000
CR Cash $150,000
What is the net profit of Nerang Orange Farms Ltd for the year ending 30 June 2010 to conform with the
provisions of AASB 141 "Agriculture"?
A. $60,000.
B. $210,000.
C. $300,000.
D. $310,000.
13
55. Lynne-Melinda Ltd operates a large scale lavender farm supplying companies producing high quality
essential oils in the Riverina region. On 30 June 2009 the farm was independently appraised and the lavender
farm valued at $500,000. On 31 October 2009 lavender seed flowers that had a fair value less costs to sell of
$100,000 were harvested and sold on the same day for the same amount. Picking costs and delivery charges to
point-of-sale was $10,000. On 30 June 2010 the farm was valued at $550,000.
What journal entry is required on 31 October 2009 to recognise the harvest of lavender seeds?
A.
Dr Inventory -Lavender $100,000

Cr Revenue – Harvest of Lavender $100,000
B.
C.
Dr Inventory – Lavender $100,000
Cr Lavender Farm (Asset) $90,000
Cr Cash $10,000
D.
Dr Lavender Farm (Asset) $100,000
CR Cash $10,000
What is the net profit for Melinda and Lynne Ltd on 30 June 2010?
A. $50,000.
B. $90,000.
C. $140,000.
D. $150,000.
14
57. Which of the following statements is a valid argument for not recognising heritage assets in the statement of
financial position?
A. Heritage assets provide economic benefits.
B. The identity of the party that ultimately controls the heritage asset is not clear.
C. The benefits derived from use of heritage assets are measured reliably.
D. Demand for financial information on heritage assets has been clearly established.
58. Which of the following are within the scope of AASB 141 "Agriculture"?
A. Land related to agricultural activity
B. Research and development costs of a biological asset
C. Warehouse used to sheer wool from sheep
D. Equipment and machinery used to harvest grapes
A. Pigs
B. Carcass
C. Sausages
D. Cattles
60. Margaret Ltd has a vineyard and at the end of reporting period 30 June 2012 the following information is
available.
Carrying amount of the vineyard, 30 June 2011 $7,500,000

Fair value of harvested grapes on 29 June 2012 600,000
Estimated point-of-sale costs of grapes 20,000
Estimated point-of-sale costs of vines as at 30 June 2012 50,000
Fair value of the vineyard before harvest of grapes on 29 June 2012 $7,800,000
What is the change in fair value less estimated point-of-sale costs of the vines for the reporting period 30 June 2012 in accordance with AASB 141
"Agriculture"?
A. ($350,000)
B. ($300,000)
C. $250,000
D. $350,000
15
61. Margaret Ltd has a vineyard and at the end of reporting period 30 June 2012 the following information was
available.

There was no material change in the condition of vineyard from last appraisal to 30 June 2012
In accordance with AASB 141 "Agriculture", what is the journal entry to recognise the harvest of grapes on 25 June 2012?
A.
Dr Biological asset -Vines 600,000
Cr Gain arising on recognition of harvested grapes 600,000
B.
Dr Agricultural produce -Grapes 600,000
C.
D.
62. Discuss the controversy in the recognition of heritage assets in the statement of financial position.
63. Examine whether heritage assets satisfy the definition of assets under AASB framework.
16
64. Discuss the weaknesses of using historical cost basis in the valuation of biological assets. In your answer
you should consider the trade-off between relevance and reliability.
65. What is the appropriate accounting treatment for agricultural produce at initial recognition and subsequent
measurement dates?
66. Discuss how biological assets should be presented in the balance sheet that is in accordance with AASB
141.
67. Outline the different ways an entity engage in agricultural could recognise revenue.
17
68. The release of AASB 1037 "Self-generating and Regenerating Assets" a predecessor of AASB 141
"Agriculture" was controversial. Discuss the criticisms in the accounting treatment for biological assets which
continue to trouble AASB 141.
69. Discuss the rationale for having a separate standard on accounting for agricultural activities.
18
09 Key
1. Concept of control is problematic for heritage assets but not so for biological assets.
FALSE
Deegan - Chapter 09 #1
difficulty: EMPTY
learning goal: EMPTY
learning objective: EMPTY
level: EMPTY
lo: EMPTY
question type: EMPTY
source: EMPTY
type: EMPTY
2. AASB 101 requires heritage assets to be disclosed separately on the statement of financial position.
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
3. In accordance with AASB 141 "Agriculture" biological assets may be classified as part of property, plant and
equipment in the statement of financial position.
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
1
4. Demand for financial information on heritage assets has not been clearly established.
TRUE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
5. An agricultural produce is no longer re-measured to fair value because it is accounted for using the lower of
cost or recoverable amount.
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
6. "Wine" is classified as a processed product of an agricultural produce "grapes" and is still within the scope of
AASB 141 "Agriculture".
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
2
7. Heritage assets may be defined as intangible assets that a community intends preserving because of cultural,
historic or spiritual associations:
FALSE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
8. According to AAS 29 government departments should put a financial value on their heritage assets for the
purpose of disclosure in general-purpose financial reports:
TRUE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
9. A concern associated with the capitalisation of heritage assets is that it will lead to financial statement users
believing that the assets could be readily sold when this is not the case:
TRUE
difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
3
10. Research has indicated that in general large arts institutions in the English-speaking world value their
collections as assets and report them in their financial statements:
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
11. The requirements of AAS 29 are out of line with one of the views outlined in the International Accord on
the Value of Natural Science Collections:
TRUE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
12. In order to apply the contingent-valuation method to heritage assets it is necessary to decide whether or not
leisure time should be charged at an individual's wage rate:
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
4
13. Unlike heritage assets, there has always been very clear guidance on the treatment of biological assets given
their importance in Australia.
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
14. Biological assets are defined in AASB 141 as 'living animal or plant':
TRUE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
15. AASB 141 prohibits the classification of biological assets as current or non-current:
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
5
16. AASB 141 does not require gains to be broken down into volume changes and price changes as
recommended by Roberts, Staunton and Hagen:
TRUE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
17. AASB 141 requires that biological asset be recognised at cost until the asset is sold.
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
18. AASB 141 covers agricultural activities such as deep sea fishing.
FALSE

difficulty: EMPTY
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
6
19. Features common to heritage assets are that they typically:
A. Are unique, are aspects of the natural environment (for example, parks), and cannot be replaced.
B. Have no alternative use, cannot be replaced, and generate negative net cash flows.
C. Are self-generating, individually unique, and generate negative net cash flows.
D. Have no alternative use, cannot be replaced, and generate positive net cash flows.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
20. One of the arguments against recording heritage assets as assets in the financial statements is that they
typically generate negative net cash flows. SAC 4 argues in response to this that:
A. Economic benefits as defined in SAC 4 extend beyond the mere financial benefits that an entity chooses to
extract from its assets.
B. These assets benefit the reporting entities, enabling them to meet their objectives of providing the needed
services to beneficiaries.
C. Meeting the needs of beneficiaries in a broad sense provides an economic benefit to society as a whole that
should be captured through financial measurement in the annual reports of the entity.
D. Heritage assets may in many cases not meet the definition of generating future economic benefits for the
entity that controls them; however, in the cases where there is evidence of positive future cash flows these
should be recorded as assets.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
7
21. A contentious issue with heritage assets is valuation. This is a concern because:
A. For some heritage assets no market really exists to determine fair value.
B. As heritage assets are by their nature unique, it is difficult to compare them with similar assets.
C. Those entities charged with responsibility for heritage assets usually don't have the discretion to dispose of
them, so 'market value' has no relevance.
D. Heritage assets generally create negative cash flows and so using discounted cash flows to establish value is
impractical.

Difficulty: Moderate
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
22. AAS 29 states that the measurement basis of infrastructure and heritage assets should be:
A. Depreciated historical cost.
B. Written current cost.
C. Depreciated fair value.
D. Recoverable amount.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
8
23. A broader issue raised by the measurement of heritage assets in the financial statements of government
entities is the appropriateness of the AASB Framework Project for not-for-profit entities. Among other things,
writers have argued that:
A. It is not clear that the social objectives of not-for-profit enterprises are compatible with the approach to
accountability implied in the qualitative disclosures the Conceptual Framework Project gives rise to.
B. The heritage 'assets' held by not-for-profit entities should be de-accessioned and valued at cost if they are to
fit within the definitions of assets in the Conceptual Framework. Where this is not feasible they fall outside the
Conceptual Framework's objectives.
C. Accrual accounting concepts form the basis of the Conceptual Framework Project. These concepts are
fundamentally based on the historical-cost approach to accounting and are therefore flawed in relation to
heritage assets, which clearly should be valued using a market-based measure.
D. It is not clear that 'assets' held by not-for-profit entities should be defined in terms of their probability of
generating future economic benefits.

level: EMPTY
lo: EMPTY
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type: EMPTY
24. A recognition criterion for assets is that the entity reporting them should have control (but not necessarily
ownership) of them. Heritage assets often have features that make the establishment of control difficult. These
features include:
A. The interrelationships between legislation and regulations governing heritage assets may make it difficult to
establish which government agency has ultimate control over the asset.
B. It can be difficult to control access to a range of heritage assets.
C. The government agency with responsibility for the heritage asset may be restricted in what it may do with the
asset.
D. The interrelationships between legislation and regulations governing heritage assets may make it difficult to
establish which government agency has ultimate control over the asset; and the government agency with
responsibility for the heritage asset may be restricted in what it may do with the asset.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
9
25. Measuring the value of heritage assets to be reported in the balance sheet raises difficulties because:
A. While reliable valuations may be made, the cost of maintaining and improving the value of the assets is so
high that the capitalisation of these amounts often distorts the valuations.
B. The cost of heritage assets is the most reliable measure, but because heritage assets may be very old their
carrying value will often be zero under the requirements of AAS 29.
C. Obtaining a reliable valuation for heritage assets is problematic because there will generally be no sales or
purchases and no valid market comparison to use.
D. The cost of obtaining detailed valuations by experts in the area of the specific type of heritage asset is
prohibitive for most government departments.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
26. In accordance with the requirements of the AASB Framework, accounting standard setters should ensure
that the benefits from required disclosures exceed the costs incurred by entities in making them. The costs
associated with a disclosure are specified by the AASB Framework to include:
A. The cost of interpretation of the information.
B. The cost of dissemination of the information.
C. The cost of misdirection of resources where the information is not reliable.
D. The cost of interpretation of the information and the cost of misdirection of resources where the information
is not reliable.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
10
27. Providing financial information about heritage assets:
A. Is important as it will benefit all users.
B. Is a requirement of AAS 29 which appears to be based on the assumption that only financial information is
relevant to report users.
C. Will result in wasted resources if demand for such information is limited.
D. Should be done only if the cost of providing the information exceeds the benefits.

Difficulty: Fairly easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
28. Jaenicke and Glazer (1992) suggest an alternative approach to the one in AAS 29 for disclosures by
museums within a US context. The proposal is that:
A. They should present a summary by classes of items held in the collection that shows the cost of items held,
any purchases and the inflow of cash from sales of items from the collection and any grants received.
B. They should present a schedule of changes in the number of items in the collection, reconciling the beginning
and ending figures. The dollar figures for total current-period purchases, contributions and sales of collection
items should also be disclosed.
C. They should present a schedule of the nature and type of the heritage asset held and a summary of the cost to
maintain the collection in its current condition. Disclosures about the amounts received from the sale of items
and grants received should be provided as well as a statement of the number of items purchased and their cost.
D. They should present a summary statement showing how grants received and the proceeds from items sold
during the period were allocated to the purchase of additional items and the maintenance of the existing
collection. Amounts spent on administration and other overheads should be separately detailed to the extent that
they are material.

level: EMPTY
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11
29. Arguments for the use of financial valuations of heritage assets to fulfil the accountability and performance
evaluation functions of accounting statement preparation include:
A. The funds contributed to government departments cannot be effectively tracked unless valuations of heritage
assets are included in financial statements.
B. Managers of heritage assets need to ensure that they maximise the value of the collections and maintain them
appropriately. Valuations of all assets provide an accurate performance measure in this regard.
C. In order to assess whether or not managers of collections have performed well it is necessary to have
financial valuations of the heritage assets held at the beginning and end of the period. Decisions to buy and sell
heritage assets can then be evaluated in the context of their impact on the quality of the entire collection.
D. Performance measurement will be more accurate because, for example, rate of return is calculated on total
asset base.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
30. Parker (1996) has identified a number of quantitative and qualitative performance indicators that he argues
provide a broader scope of accountability for managers of heritage assets in museums. The indicators he has
proposed include:
A. The quality of experience of visitors.
B. The uses made of collections.
C. The number of visitors.
D. Both the uses made of collections and the number of visitors.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
12
31. Methods that have been used to provide a valuation of heritage assets include:
A. Contingent-valuation method and the nominal or notional value.
B. Travel-cost method and adjusting the market values of nearby privately held properties.
C. The net present value of the adjusted cash-flow method and the arbitrary allocation of cost method.
D. Contingent-valuation method and the nominal or notional value and travel-cost method and adjusting the
market values of nearby privately held properties.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
32. Contingent Valuation of Heritage will not be effective unless:

A. An accurate description of the item to be valued is given.
B. A sample of the society that knows the true value of the asset is chosen.
C. The asset to be valued is available for the public to view.
D. The asset can actually be purchased in an open market.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
13
33. Examples of biological assets include:
A. Trees in a recreational park.
B. Aquaculture and fishery holdings.
C. Telecommunications and computer software.
D. Preserved fossilised remains.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
34. AASB 141 excludes certain biological assets from its scope. To be included.
A. The living animal or plant must be capable of earning revenue.
B. The asset must be alive and may include organisms such as viruses.
C. The living animal or plant must be used in a commercial venture.
D. The living animal or plant may only be used within an agricultural activity.
E. The living animal or plant must be capable of earning revenue and the living animal or plant must be used in
a commercial venture.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
14
35. Prior to the effective date for implementation of AASB 1037 (30 June 2001) the difficulties in classifying
self-generating and regenerating assets caused the use of a variety of practices among reporting entities. Those
classifications for self-generating and regenerating assets include:
A. Inventory.
B. Property plant and equipment.
C. Non-current inventory.
D. Regenerative assets.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
36. Biological assets may be difficult to classify as current or non-current because:

A. The asset may unexpectedly become ill or die.
B. The value of the asset may change depending on management's intention.
C. The operating cycle of the entity may be unknown.
D. The same physical assets may have either a shorter or longer life span depending on management intention.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
15
37. Roberts, Staunton and Hagen (1995) propose that biological assets be subject to a classification scheme that
differs from other assets. This scheme would require:
A. Biological assets to be grouped into one category and then subdivided into current and non-current groups.
B. The intent of management to be stated at acquisition date so that the assets can be properly classified.
C. These types of assets to be shown in a separate category of 'biological assets' and identified by subcategories.
D. Notes to be included in the accounts clearly identifying why a biological asset had been classified.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
38. Valuations of forestry assets in Australia have been undertaken on:

A. An historical-cost basis.
B. A replacement and/or market-value basis.
C. Using net present values.
D. An historical-cost basis and a replacement and/or market-value basis.
E. An historical-cost basis, a replacement and/or market-value basis and using net present values.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
16
39. Net present value (NPV) method has been considered as an alternative valuation technique to historical cost
for biological assets. The NPV method may be described as:
A. An accounting method for projecting the revenues and expenses associated with an asset or entity.
B. An economic concept based on the notion that an asset's value can be determined from its future cash flows.
C. An accounting concept based on the statement of cash flows to determine the present value of investments.
D. A finance technique for testing the efficiency of the market by comparing share prices to the discounted cash
inflows associated with the asset.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
40. Difficulties applying the net present value method to forests include the need to estimate:
A. The time the trees will take to mature.
B. The volume yield and processing utility.
C. The costs associated with replanting should the forestry operation be considered a continuing activity.
D. The future transportation costs.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
17
41. AASB 141 requires biological assets to be measured at:
A. The lower of cost and net realisable value.
B. Recoverable amount.
C. Current replacement cost.
D. Fair value less costs to sell.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
42. AASB 141 states that where no active market exists fair value may be determined by:
A. The most recent market transaction price, irrespective of any changes to economic conditions.
B. Market prices for similar assets without adjustments to reflect differences.
C. Sector benchmarks expressed in relevant units for that type of asset.
D. Using net present values calculated at the current-market determined post-tax rate.

level: EMPTY
lo: EMPTY
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18
43. Where a biological asset is not separable from other assets:
A. The value of the biological asset should be included in the value of the other asset.
B. The value of the package of assets for which an active market exists should be used to assist in determining
the fair value of the biological assets.
C. The fair values of the non-biological assets should be subtracted from the package value.
D. The value of the package of assets for which an active market exists should be used to assist in determining
the fair value of the biological assets and the fair values of the non-biological assets should be subtracted from
the package value.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
44. One approach to revenue recognition proposed for biological assets is to recognise volume changes as
revenue or expense but to treat price changes as an adjustment to equity through a reserve. Arguments that
support this approach include:
A. Price changes have not been realised and so should not be recognised in the income statement.
B. Treating price changes as a non-distributable reserve protects the operating capability of the entity.
C. The biological development of a self-generating and regenerating asset is clearly distinguishable and
separately measurable from changes in price.
D. The treatment should be equivalent to that used in other reporting standards such as AAS 25 'Financial
Reporting by Superannuation Funds'.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
19
45. One approach to revenue recognition proposed for self-generating and regenerating assets is to recognise
volume changes as revenue or expense but to treat price changes as an adjustment to equity through a reserve.
Arguments against this approach include:
A. It is often impracticable to separate price and volume changes.
B. There is no precedent in accounting standards for the recognition of changes in market values as adjustments
to equity.
C. The total increase in value is the production for the period and it should be available for distribution to
owners.
D. The revenue for the period would not reflect the performance of management.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
46. What treatment of revenue recognition is required by AASB 141?

A. Revenue should be recognised in the income statement on the sale of the asset. Losses should be recognised
as a result of a write-down to recoverable amount.
B. Changes in the net market values of biological assets that relate to volume changes must be recognised as
revenues or expenses as appropriate in the profit and loss statement.
C. Changes in the current replacement cost of biological assets should be treated as adjustments to the asset
revaluation reserve. Revenues should be recognised on the sale of the asset and matched against the
replacement cost of the asset sold.
D. Increments and decrements in the net market values of biological assets must be recognised as revenues or
expenses in the profit and loss statement for the financial year in which the increments or decrements occur.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
20
47. What is the accounting treatment for a non-living product of a biological asset in accordance with AASB
141 "Agriculture"?
A. They are to be treated the same as all other biological assets and are to be valued accordingly.
B. They shall be measured at fair value less point-of-sale costs at the point of harvest and thereafter be covered
by AASB 102 "Inventory".
C. They become a special category of biological assets that should be valued at the lower of cost or market
value until sold.
D. They are no longer biological assets but are to be treated as current or non-current assets as appropriate,
based on management's intention for the product.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
48. AASB 1037 and AASB 141 have been criticised on the grounds that:
A. Their affect is to overstate the payout ratio relative to companies in the US.
B. They emphasise reliability over relevance in asset measurement.
C. They limit the accounting methods available to report on these types of assets.
D. They will hinder the timely production of financial reports.

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
21
49. Which of the following statements is correct with respect to accounting for biological assets as required in
AASB 141:
A. A biological asset may initially be recognised at cost when market-determined prices or value are not
available and for which alternative estimates of fair value are not available.
B. If a biological asset is initially recognised at cost it should be measured at cost less any accumulated
depreciation.
C. A biological asset that was initially recognised at fair value less point-of-sale costs may subsequently be
recognised at cost when fair value less point-of-sale costs is no longer available.
D. A biological asset may initially be recognised at recoverable amount.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
50. In accordance with AASB 141 a gain or loss may arise from:
A. subsequent measurement dates of a biological asset.
B. initial recognition of an agricultural produce.
C. initial recognition of a biological asset.
D. harvesting a biological asset.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
22
A. Apple trees in a commercial orchard
B. Dried apples sold in supermarkets
C. Pine trees in a plantation forest
D. Harvested apples
E. All of the given answers

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
52. Which of the following are considered agricultural produce, hence should be reclassified to inventory?
A. Pigs held for reproduction
B. Recently planted vines
C. Sheep held for shearing wool
D. Harvested pine trees

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
23
A.

B.
CR Cash $150,000
C.
Cr Orange Farm (Asset) $310,000
D.
Dr Orange Farm (Asset) $300,000
CR Cash $150,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
24
What is the net profit of Nerang Orange Farms Ltd for the year ending 30 June 2010 to conform with the
provisions of AASB 141 "Agriculture"?
A. $60,000.
B. $210,000.
C. $300,000.
D. $310,000.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
25
What journal entry is required on 31 October 2009 to recognise the harvest of lavender seeds?
A.

B.
C.
Dr Inventory – Lavender $100,000
Cr Lavender Farm (Asset) $90,000
Cr Cash $10,000
D.
Dr Lavender Farm (Asset) $100,000
CR Cash $10,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
26
What is the net profit for Melinda and Lynne Ltd on 30 June 2010?
A. $50,000.
B. $90,000.
C. $140,000.
D. $150,000.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
57. Which of the following statements is a valid argument for not recognising heritage assets in the statement of
financial position?
A. Heritage assets provide economic benefits.
B. The identity of the party that ultimately controls the heritage asset is not clear.
C. The benefits derived from use of heritage assets are measured reliably.
D. Demand for financial information on heritage assets has been clearly established.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
27
58. Which of the following are within the scope of AASB 141 "Agriculture"?
A. Land related to agricultural activity
B. Research and development costs of a biological asset
C. Warehouse used to sheer wool from sheep
D. Equipment and machinery used to harvest grapes

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
A. Pigs
B. Carcass
C. Sausages
D. Cattles

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
28
60. Margaret Ltd has a vineyard and at the end of reporting period 30 June 2012 the following information is
available.

What is the change in fair value less estimated point-of-sale costs of the vines for the reporting period 30 June 2012 in accordance with AASB 141
"Agriculture"?
A. ($350,000)
B. ($300,000)
C. $250,000
D. $350,000

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
29
61. Margaret Ltd has a vineyard and at the end of reporting period 30 June 2012 the following information was
available.

There was no material change in the condition of vineyard from last appraisal to 30 June 2012
In accordance with AASB 141 "Agriculture", what is the journal entry to recognise the harvest of grapes on 25 June 2012?
A.
B.
C.
D.

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
30
62. Discuss the controversy in the recognition of heritage assets in the statement of financial position.
Refer to section on "Who controls heritage assets?"

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
63. Examine whether heritage assets satisfy the definition of assets under AASB framework.
Refer to page 324 section headed. "What is different with heritage assets?"

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
64. Discuss the weaknesses of using historical cost basis in the valuation of biological assets. In your answer
you should consider the trade-off between relevance and reliability.
Refer to page 345 section headed "How should biological assets be measured?"

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
31
65. What is the appropriate accounting treatment for agricultural produce at initial recognition and subsequent
measurement dates?
Refer to page 351 section headed "Accounting for Agricultural Produce".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
66. Discuss how biological assets should be presented in the balance sheet that is in accordance with AASB
141.
Refer to page 343 section headed "How should biological assets be classified and presented in the financial
statements?"

Difficulty: Easy
level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
67. Outline the different ways an entity engage in agricultural could recognise revenue.
Refer to page 349 section headed "When and how should revenue associated with biological assets be
recognised?"

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
32
68. The release of AASB 1037 "Self-generating and Regenerating Assets" a predecessor of AASB 141
"Agriculture" was controversial. Discuss the criticisms in the accounting treatment for biological assets which
continue to trouble AASB 141.
Refer to section on "Opposition to AASB 1037 and AASB 141".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
69. Discuss the rationale for having a separate standard on accounting for agricultural activities.
Refer to section on "The unique nature of biological assets".

level: EMPTY
lo: EMPTY
source: EMPTY
type: EMPTY
33
09 Summary
Category # of Questions
Deegan - Chapter 09 69
Difficulty: Easy 21
Difficulty: Fairly easy 6
Difficulty: Moderate 24

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Australian Financial Accounting 6th

Edition Deegan Test Bank

19. Features common to heritage assets are that they typically:

32. Contingent Valuation of Heritage will not be effective unless:

33. Examples of biological assets include:

36. Biological assets may be difficult to classify as current or non-current because:

41. AASB 141 requires biological assets to be measured at:

Dr Inventory – Oranges $310,000

E. None of the given answers.

Dr Inventory -Lavender $100,000

E. None of the given answers.

Carrying amount of the vineyard, 30 June 2011 $7,500,000

Carrying amount of the vineyard, 30 June 2011 $8,000,000

E. None of the given answers.

Deegan - Chapter 09 #10

Deegan - Chapter 09 #11

Deegan - Chapter 09 #12

Deegan - Chapter 09 #13

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Deegan - Chapter 09 #25

Deegan - Chapter 09 #26

Deegan - Chapter 09 #27

Deegan - Chapter 09 #28

Deegan - Chapter 09 #29

Deegan - Chapter 09 #30

Deegan - Chapter 09 #31

32. Contingent Valuation of Heritage will not be effective unless:

Deegan - Chapter 09 #32

Deegan - Chapter 09 #33

Deegan - Chapter 09 #34

Deegan - Chapter 09 #35

36. Biological assets may be difficult to classify as current or non-current because:

Deegan - Chapter 09 #36

Deegan - Chapter 09 #37

38. Valuations of forestry assets in Australia have been undertaken on:

Deegan - Chapter 09 #38

Deegan - Chapter 09 #39

Deegan - Chapter 09 #40

Deegan - Chapter 09 #41

Deegan - Chapter 09 #42

Deegan - Chapter 09 #43

Deegan - Chapter 09 #44

Deegan - Chapter 09 #45

46. What treatment of revenue recognition is required by AASB 141?

Deegan - Chapter 09 #46

Deegan - Chapter 09 #47

Deegan - Chapter 09 #48

Deegan - Chapter 09 #49

Deegan - Chapter 09 #50

Deegan - Chapter 09 #51

Deegan - Chapter 09 #52

Dr Inventory – Oranges $310,000

E. None of the given answers.