A printing company called XYZ buys a printing

1)A printing company called XYZ buys a printing machine that was
priced at 2,000,000.if XYZ pays within 30 days of delivery ,they will
receive a 10% discount on the invoice price.XYZ plans to take advantage
of the discount .the supplier also charged an assembling fee of
500,000( to which the discount does not apply ).at what amount should
XYZ initially recognize this machine?
a- 2,000,000
b- 2,500,000
c- 2,300,000

2)iron chemicals , a chemical producing company,constructs a plant for
250 million.the legislation in the country where the company operates
requires the company to clean up pollution once the production process
is finished .the plant is estimated to have a useful life of 20 years . the
cost of cleaning up the pollution is estimated to be 50 million .the
discount rate is estimated to be 10%.the present value of the liability to
clean up is 7,432,181 to be recognized in terms of IAS 37 provisions
,contingent liabilities and contingent assets .at what amount should iron
chemicals initially recognize the plany?
a- 250,000,000
b- 300,000,000
c-257,432,181

3)a manufacturer acquires a a machine that should go through a major
overhaul every three years .the total price for the equioment is 1
million .it is estimated that the overhaul will cost 200,000. It is
estimatedthat the machine has a useful life of ten years .how should the
manufacturer initially recognize this machine?
a- recognize an asset for 1 million and depreciate over 10 years.
b- recognize two assets –the machine having a worth of 800,000 depreciated over 10 years and the costs
related to the overhaul of 200,000 depreciated over three years .
c-recognize an asset for 800,000 and expense of 200,000

4)a manufacturer acquires a machine that should go through a major
overhaul every three years .the total price for the equipment is 1 million .
it is estimated that the overhaul will cost 200,000. It is estimated that the
machine has a useful life of ten years . what is the correct treatment of
the 200,000 expenditure in year 3?
a- recognize an asset of 200,000 and amortize over three years.
b- recognize an expense of 200,000

5) an airline company acquires an aircraft engine with a five-year
guarantee . based on their past experience, it is estimated that the engine
can be flown for a maximum of 10,000 hours . the average annual flying
hours are expected to be 2,000;therefore, the company plans to
depreciate the engine over five years .in reality , the number of flying
hours is erratic . in a good year , an aircraft can be flown for 3,000 hours .
what is the appropriate depreciation method the entity should adopt ?
a- depreciate the aircraft evenly over five years.
b- depreciate the aircraft evenly over three and half years.
c-depreciate the aircraft based on the expected flying hours.

6) a shipping company informs you that the market value of ships
increases every year .therefore, it is not appropriate to depreciate their
ships .do you agree with this statement?
a- yes because depreciation reflects a decline in a value of an asset.in this case, the market value of the
assets is increasing. therefore, the ships would not be depreciated .
b- yes because the allowed alternative treatment in IAS 16 allows assets to be revalued.
c-no, because depreciation reflects consumption of economic benefits of the asset, not its market
value.depreciation only ceases if the residual value is higher than the carrying value of the asset.if the
company wants to reflect the market value,they should revalue the ships .the residual value would

,however,be assessed and adjusted on an annual basis and the depreciation charge recalculated on the
new carrying amount.

7)a major fashion house repaints the interior of its shops across the
world .it is believed that this will improve the mood of the customers in
the shops .if the customers are happy,they will buy more .can the fashion
house capitalize the repainting costs ?
a- yes ,because the repainting will increase benefits which are expected from the shops and the cost can
be measured reliably.
b- no ,the costs of the repainting cannot be capitalized to the cost of the building because painting the
shops represents maintenance and it should be expensed.

8)an advertising company sold an asset that had a carrying amount of
900,000.at the date of the sale, there was a revaluation surplus of
100,000 relating to this asset recognized in other comprehensive
income. the company wants to release the revaluation surplus through
profit or loss.is this appropriate?
a- yes ,it is appropriate because all economic benefits due from the asset have been fully realized
b- no, the balance of the revaluation surplus may only be transferred directly to retained earnings.

9)an asset was initially recognized at an amount of 100,000 with a
residual value of 20,000 and a useful life of five years .in year 3 ,the
residual is re-estimated to be 30,000 .what is the appropriate
depreciation charge for year 3?
a- 20,000
b- 14,000
c-12,667
d-16,000

10) a manufacturing company upgrades the parts of its machine’s
engine. It is estimated that this will increase the output expected from
the machine to a level higher than originally estimated.the entity does
not have a policy to revalue its machines. Can the cost of the upgrade be
capitalized?
a- yes, because the upgrade increases the output i.e, the flow of economic benefits to the entity,is
probable its cost can be measured reliably, therefore, it meets the recognition criteria of an asset.
b- no, because the company does not have a policy to revalue its machines.