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(Download PDF) Financial Reporting 1st Edition Loftus Test Bank Full Chapter
(Download PDF) Financial Reporting 1st Edition Loftus Test Bank Full Chapter
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Testbank
to accompany
Financial Reporting
by
Loftus et al
Chapter 7:
Impairment of assets
1) Which of the following assets need to be tested for impairment every year:
Answer: c
Learning Objective 2: Explain when an impairment test should be undertaken
*a) year.
b) two years.
c) three years.
d) five years.
Answer: a
Learning Objective 2: Explain when an impairment test should be undertaken
Answer: b
Learning Objective 3: Outline the components of the impairment test
4) According to AASB 136 Impairment of Assets, the recoverable amount test requires an
entity to compare the fair value of an asset less costs to sell, with:
Answer: d
Learning Objective 3: Outline the components of the impairment test
5) Nguyen Limited estimated that it would receive future cash flows from the use of
equipment as follows:
The discount rate was determined as 8%. The ‘value in use’ of the equipment is:
a) $80 000.
b) $73 600.
*c) $68 000.
d) $63 500.
Answer: c
Learning Objective 3: Outline the components of the impairment test
6) Candy Limited expected future cash flows from the use of equipment as follows: End of
Year 1 $4000; End of Year 2 $5000; End of Year 3 $2000. The discount rate was determined
as 5%. The value in use of the equipment is:
Answer: a
Learning Objective 3: Outline the components of the impairment test
7) Where an asset is measured using the cost model, any impairment loss is:
Answer: d
Learning Objective 4: Describe how to account for an impairment loss for a single asset
8) An appropriate journal entry to recognise an impairment loss under the cost model is:
Answer: c
Learning Objective 4: Describe how to account for an impairment loss for a single asset
9) Under AASB 136 Impairment of Assets, which of the following identifies an impairment
of an asset and describes the appropriate accounting treatment using the cost model?
Answer: c
Learning Objective 3: Outline the components of the impairment test
10) When an asset is measured using the revaluation model, any impairment loss is treated as:
Answer: a
Learning Objective 4: Describe how to account for an impairment loss for a single asset
11) Hayfield Limited recognised an impairment loss of $200 against a cash-generating unit
containing the following assets: buildings $500; roads $300; equipment $600. The net
carrying amount of the roads after allocation of the impairment loss is:
a) $100.
b) $235.
*c) $257.
d) $300.
Answer: c
Learning Objective 5: Describe how to account for an impairment loss for a cash-generating
unit
12) At reporting date Guilder Limited estimated an impairment loss of $50 000 against its
single cash-generating unit. The company had the following assets: headquarters building
$100 000; plant $60 000; equipment $40 000. The net carrying amount of the plant after
allocation of the impairment loss is:
a) $60 000.
*b) $45 000.
c) $35 000.
d) $10 000.
Answer: b
Learning Objective 5: Describe how to account for an impairment loss for a cash-generating
unit
13) Jam Pty Ltd has two cash generating units. CGU A had a carrying amount of $700 and
value in use of $750. CGU B has a carrying amount of $900 and a value in use of $800. The
carrying amount of the head office assets is $400. CGU A and B utilise the head office
services equally. The impairment loss for CGU A is:
a) $0.
b) $50.
*c) $150.
d) $350.
Answer: c
Learning Objective 5: Describe how to account for an impairment loss for a cash-generating
unit
14) When assessing the recoverable of assets that have previously been subject to an
impairment loss, which of the following indicators assist in providing external evidence that
an impairment loss has reversed:
a) the asset’s market value has decreased significantly during the period.
b) significant changes with an adverse effect on the entity have taken place.
*c) market interest rates have decreased during the period.
d) internal reporting sources indicate that the economic performance of the asset will not be
as good as expected.
Answer: c
Learning Objective 6: Explain when an impairment loss can be reversed and how to account
for it
15) During 2013, Sacco Limited estimated that the carrying amount of goodwill was impaired
and wrote it down by $50 000. In 2014, the company reassessed goodwill and determined
that the goodwill initially acquired still existed. The appropriate accounting treatment in 2014
is:
Answer: c
Learning Objective 6: Explain when an impairment loss can be reversed and how to account
for it
16) AASB 136 Impairment of Assets requires which of the following disclosures for each
class of assets:
I The line item(s) of the statement of profit or loss and other comprehensive income in which
impairment losses are included.
II The amount of reversals of impairment losses during the period.
III The amount of impairment losses recognised directly in other comprehensive income.
IV The beginning and ending balances of any accumulated impairment account.
Answer: a
Learning Objective 7: Identify the disclosures required in relation to impairment of assets
17) If an entity does not expect to recover the carrying amount of an asset, the entity has
incurred:
Answer: a
Learning Objective 1: Explain the nature and purpose of an impairment test
Answer: d
Learning Objective 2: Explain when an impairment test should be undertaken
19) When evaluating whether an asset has been impaired, the carrying amount of the asset
must be compared to recoverable amount. Recoverable amount is the higher of:
Answer: b
Learning Objective 3: Outline the components of the impairment test
Answer: d
Learning Objective 3: Outline the components of the impairment test
21) Constructor Limited estimated an impairment loss of $500 against its single cash-
generating unit. The company had the following assets: headquarters building $1000;
construction plant $600; equipment $400. The net carrying amount of the equipment after
allocation of the impairment loss is:
a) $200
b) $400
*c) $300
d) $0
Answer: c
Learning Objective 5: Describe how to account for an impairment loss for a cash-generating
unit
22) Which of the following is NOT correct in relation to the reversal of an impairment loss of
an individual asset:
a) When reversing an impairment loss the carrying amount cannot be increased to an amount
in excess of the carrying amount that would have been determined had no impairment loss
been recognised.
b) For a depreciable asset there needs to be a calculation of carrying amount using the
depreciation variables applied before the impairment loss to determine what the carrying
amount would have been if there had been no impairment loss.
c) If the individual asset is recorded under the cost model, then the increase in the carrying
amount is recognised immediately in profit or loss.
*d) Where the recoverable amount is less than the carrying amount of an individual asset, the
reversal of a previous impairment loss requires adjusting the carrying amount of the asset to
recoverable amount.
Answer: d
Learning Objective 6: Explain when an impairment loss can be reversed and how to account
for it
23) Which of the following is required to be disclosed for each class of assets:
I — the amount of impairment losses recognised in profit or loss during the period.
II — the amount of reversals of impairment losses recognised in profit or loss during the
period.
III — the amount of impairment losses on revalued assets recognised in other comprehensive
income during the period.
IV — the amount of reversals of impairment losses on revalued assets recognised directly in
other comprehensive income during the period.
Answer: b
Learning Objective 7: Identify the disclosures required in relation to impairment of assets