Investment Property and Fair Value Quiz

Questions and Answers

Which account is credited upon the initial recognition of the cash surrender value of a life insurance policy?

Cash

Prepaid life insurance

Life insurance expense

Cash surrender value of life insurance policy (correct)

What should be debited when there is a difference between the present value of the security lease deposit and the actual cash paid?

Interest receivable

Leases bonus payable

Compensation expense

Prepaid lease expense (correct)

Which of the following would not be classified as investment property?

Building leased out under operating leases

Land held for short-term sale (correct)

Land held for long term capital appreciation

Land held for currently undeterminable future use

Under what circumstance can property be transferred from investment property to property, plant, and equipment?

When there is change in use Signup and view all the answers

What happens to excess fair value over carrying amount when reclassifying from owner-occupied property to investment property at fair value?

Credited to asset revaluation surplus Signup and view all the answers

How is a gain from a change in the fair value of an investment property recognized when using the fair value model?

Profit or loss for the year Signup and view all the answers

Which type of property would be classified appropriately as investment property?

Land held for long-term capital appreciation Signup and view all the answers

What is the implication of choosing the fair value model for an investment property?

Gains or losses are reflected in the income statement Signup and view all the answers

Which of the following comprise the cost of an item of property, plant and equipment?

Purchase price, import duties, any cost directly attributable to bring the asset to use Signup and view all the answers

What should be done with the costs incurred to tear down an old building when land is purchased?

Added to the cost of the land Signup and view all the answers

How should initial operating losses incurred during installation of a new production facility be treated?

Expensed and charged to the income statement Signup and view all the answers

Which of the following statements regarding property, plant, and equipment is correct?

Costs of properties exchanged for assets should reflect the fair market value received Signup and view all the answers

What items are chargeable to the Land account?

Survey costs, improvements like fences, and title transfer fees Signup and view all the answers

What is the correct accounting treatment for gifts of property, plant, and equipment?

Recorded at fair value at the time of donation Signup and view all the answers

Which expenses can typically be charged to the cost of a new plant?

Transport fees for machinery transits Signup and view all the answers

Which costs would NOT be considered as costs directly attributable to bringing an asset ready for its intended use?

Sales commission for related equipment Signup and view all the answers

Study Notes

Cash Surrender Value Recognition

The cash surrender value of a life insurance policy is initially credited upon recognition.

Lease Deposits and Cash Payments

The difference between the present value of a security lease deposit and cash paid is debited to prepaid lease expense.

Investment Property Classification

Land held for long-term capital appreciation is classified as investment property.
Land held for short-term sale in the ordinary course of business is not considered investment property.
Buildings leased under operating leases are classified as investment property.

Transfers Between Property Classifications

Transfers from investment property to property, plant, and equipment occur when there is a change in use.

Reclassification and Fair Value

Any excess fair value over the carrying amount during reclassification from owner-occupied property to investment property is recognized as a gain on the income statement.

Gains from Fair Value Changes

Gains arising from changes in fair value of investment property using the fair value model are recognized in profit or loss for the year.

Appropriately Classified Investment Property

Property intended for rental purposes is classified as investment property.

Cost Components of Property, Plant, and Equipment

The cost of an item includes the purchase price, import duties, non-refundable purchase taxes, and costs directly attributable to preparing the asset for use, but not fines for import violations.

Costs incurred to tear down a building are added to the cost of the land when the land is to be used for construction.

Initial Operating Losses during Installation

Initial operating losses incurred during the installation of a new facility should be expensed and charged to the income statement.

Donations and Asset Valuation

Donations of property, plant, and equipment should be valued at fair value at the time of donation.

Asset Acquisition Costs Allocation

When a group of assets is acquired for a lump sum, costs should be allocated based on carrying amounts, and exchanges of property for shares should be recorded at fair value of the asset or securities.

Chargeable Costs to Land Account

Costs associated with surveys, fences, registration fees, and attorney fees for establishing title are chargeable to the land account.

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Description

This quiz covers key concepts regarding cash surrender value recognition, lease deposits, and the classification of investment properties. It also addresses the implications of property transfers and reclassification on financial statements. Test your understanding of these crucial accounting principles.