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Questions and Answers
Which account is credited upon the initial recognition of the cash surrender value of a life insurance policy?
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?
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?
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?
Under what circumstance can property be transferred from investment property to property, plant, and equipment?
What happens to excess fair value over carrying amount when reclassifying from owner-occupied property to investment property at fair value?
What happens to excess fair value over carrying amount when reclassifying from owner-occupied property to investment property at fair value?
How is a gain from a change in the fair value of an investment property recognized when using the fair value model?
How is a gain from a change in the fair value of an investment property recognized when using the fair value model?
Which type of property would be classified appropriately as investment property?
Which type of property would be classified appropriately as investment property?
What is the implication of choosing the fair value model for an investment property?
What is the implication of choosing the fair value model for an investment property?
Which of the following comprise the cost of an item of property, plant and equipment?
Which of the following comprise the cost of an item of property, plant and equipment?
What should be done with the costs incurred to tear down an old building when land is purchased?
What should be done with the costs incurred to tear down an old building when land is purchased?
How should initial operating losses incurred during installation of a new production facility be treated?
How should initial operating losses incurred during installation of a new production facility be treated?
Which of the following statements regarding property, plant, and equipment is correct?
Which of the following statements regarding property, plant, and equipment is correct?
What items are chargeable to the Land account?
What items are chargeable to the Land account?
What is the correct accounting treatment for gifts of property, plant, and equipment?
What is the correct accounting treatment for gifts of property, plant, and equipment?
Which expenses can typically be charged to the cost of a new plant?
Which expenses can typically be charged to the cost of a new plant?
Which costs would NOT be considered as costs directly attributable to bringing an asset ready for its intended use?
Which costs would NOT be considered as costs directly attributable to bringing an asset ready for its intended use?
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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 Related to Building Demolition
- 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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