Question

In: Accounting

True or false

True or False

1. The depreciable cost of a plant asset cost and useful life are based on estimates

2. In calculating depreciation, both plant assets cost and useful life are based on estimates.

3. All property, plant, and equipment must be depreciated for accounting purposes.

4. Ordinary repairs should be recognized as revenue expenditures when incurred.

5. Capital expenditures are costs that increase the company's investment in productive facilities.

6. Goodwill is amortized and tested at least annually for impairment.

7. Customer list has indefinite useful life.

8. The cost of a patent must be amortized over a 20 year period

9. When an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired.

10. Development cost are capitalized only before technical and commercial feasibility of the asset for sale or use have been established.

11. Goodwill is not recognized in accounting unless it is acquired from another business enterprise

12. An intangible asset is identifiable when it cannot be separated from the entity itself.


Solutions

Expert Solution

1.The depreciable cost of a plant asset cost and useful life are based on estimates

     False

 

The useful life of an asset is based on estimates whereas the Plant cost is actual expense incurred .So with this we can understand that the depreciable cost of plant is not wholly an estimate but it includes actual values too.

2.In calculating depreciation, both plant assets cost and useful life are based on estimates.

        False

The salvage value and Useful life are Assumptions based on Estmates . Plant Assets cost is the actual cost incurred to acquire the asset .

3. All property, plant, and equipment must be depreciated for accounting purposes.

      False

    Every property, plant (Fixed assets ) and Equipment  need not to be depreciated .For example :Land cannot be         depreciated.There are only some Exception assets which cannot be depreciated .

4. Ordinary repairs should be recognized as revenue expenditures when incurred.

     TRUE

  For a Machine to operate regular maintenance charges should be made.These expenses are charged to profit and loss account .If the repairs made  increases the production capacity or useful life of the asset then it should be capitalized.

5. Capital expenditures are costs that increase the company's investment in productive facilities.

    True

 Capital Expenditures are made to purchase Fixed assets or Equipment which will increase the company's investment in production Facilitites .

6.Goodwill is amortized and tested at least annually for impairment.

   False

As per Business combinations standard ,Goodwill cannot be amortized.But Goodwill will be tested for impairment atleast annually for impairment .Goodwill impairment is recorded in the profit and loss account which will decrease the Net income.

7. Customer list has indefinite useful life.

    False

Customer list has definite life because they could not have indefinite benefit period.The cost of acquiring customer list from another company is recorded as Intangible asset.

8. The cost of a patent must be amortized over a 20 year period

    False

The cost of a patent must be amortized over a 20 years period or useful life of the asset which ever is shorter .

9. When an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired.

      False

In case of business purchase ,if the purchase consideration paid exceeds the fair value of net identifiable  assets received from purchase then the excess amount paid is considered as Goodwill.

10. Development cost are capitalized only before technical and commercial feasibility of the asset for sale or use have been established.

     False

Development costs are capitalized only after the point of technical feasibility is reached .and they are capitalized as an intangible asset.They are amortized every year since then.

11.Goodwill is not recognized in accounting unless it is acquired from another business enterprise

   TRUE      

    As per International financial reporting standard,Goodwill is not recognized in accounting unless it is acquired from another business enterprise.In Business combination scenario's if goodwill arises then only it can be recognized ..

12. An intangible asset is identifiable when it cannot be separated from the entity itself.

     False

An identifiable Intangible asset is an asset that can be seperated from the entity and can be sold,exchanged , Transferred etc. Examples are Trademarks ,Copyrights etc 

 

 


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