All Free Accounting MCQs with Answers
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1,971 questions · page 88 of 99
- A. Installing a major production component
- B. Extending the machine's useful life
- C. Routine oiling and minor repairs
- D. Adding a new operating capacity
Explanation: Routine oiling and minor repairs maintain the machine's existing condition and are normally charged as revenue expenditure.
Correct answer: Routine oiling and minor repairs- A. A prior-period error correction
- B. A change in accounting estimate
- C. A change in accounting policy
- D. A discontinued operation
Explanation: Useful life is an accounting estimate because it depends on expected future consumption of economic benefits.
Correct answer: A change in accounting estimate- A. A depreciation reserve increase
- B. An impairment loss
- C. A revaluation surplus
- D. A deferred tax asset
Explanation: An impairment loss is recognized when the asset's carrying amount exceeds its recoverable amount.
Correct answer: An impairment loss1744. Under the straight-line method, when does depreciation of a newly purchased machine normally begin?
- A. When the purchase order is approved
- B. When the machine is available for use
- C. When the first product is sold
- D. When the supplier receives payment
Explanation: Depreciation begins when the asset is in the location and condition necessary for its intended operation.
Correct answer: When the machine is available for use1745. Which cost is normally included in the initial cost of an item of property, plant and equipment?
- A. Staff training after installation
- B. Advertising for the new product
- C. Installation and testing costs
- D. General office administration costs
Explanation: Installation and testing are directly attributable costs of bringing the asset to the location and condition required for operation.
Correct answer: Installation and testing costs- A. Rs. 100,000
- B. Rs. 120,000
- C. Rs. 108,000
- D. Rs. 132,000
Explanation: Depreciable amount is Rs. 900,000, giving depreciation of Rs. 10 per unit. For 12,000 units, depreciation is Rs.
Correct answer: Rs. 108,000- A. As revenue in the income statement
- B. As a revaluation surplus in other comprehensive income
- C. As an increase in share capital
- D. As a liability in the statement of financial position
Explanation: A normal upward revaluation is recognized in other comprehensive income and accumulated in equity as a revaluation surplus.
Correct answer: As a revaluation surplus in other comprehensive income- A. As one asset over the shorter life
- B. As one asset over the longer life
- C. Separately over their respective useful lives
- D. Only when the roof is eventually replaced
Explanation: Significant parts of an asset with different useful lives are accounted for as separate components.
Correct answer: Separately over their respective useful lives- A. Remove its cost and accumulated depreciation from the records
- B. Transfer its cost directly to retained earnings
- C. Continue depreciation until the sale proceeds are collected
- D. Record the sale proceeds as a liability until year-end
Explanation: Disposal requires derecognition of both the asset's cost and its related accumulated depreciation.
Correct answer: Remove its cost and accumulated depreciation from the records- A. It is a contra-asset account
- B. It is a current liability account
- C. It is an income account
- D. It is a capital reserve account
Explanation: Accumulated depreciation is a contra-asset account that reduces the asset's gross carrying amount to arrive at its carrying amount.
Correct answer: It is a contra-asset account1751. How often should the depreciation method for a non-current asset normally be reviewed under IAS 16?
- A. Only when the asset is disposed of
- B. At least at each financial year-end
- C. Only after a physical accident
- D. Once every ten financial years
Explanation: The depreciation method is reviewed at least at each financial year-end to determine whether it still reflects the pattern of consumption…
Correct answer: At least at each financial year-end- A. It continues at double the normal rate
- B. It continues until the sale contract is signed
- C. It ceases from the date of classification
- D. It is transferred to accumulated capital
Explanation: Depreciation ceases when the asset is classified as held for sale because its carrying amount will be recovered mainly through sale rather…
Correct answer: It ceases from the date of classification- A. It is paid through the business bank account
- B. It extends useful life or increases productive capacity
- C. It is incurred during the final month of the year
- D. It is supported by a supplier invoice
Explanation: Expenditure that extends useful life, improves performance, or increases productive capacity usually creates future economic benefits and…
Correct answer: It extends useful life or increases productive capacity- A. Its original cost plus accumulated depreciation
- B. Its cost less its estimated residual value
- C. Its carrying amount plus impairment losses
- D. Its residual value less accumulated depreciation
Explanation: Depreciable amount is the portion of an asset's cost that is allocated as depreciation over its useful life.
Correct answer: Its cost less its estimated residual value- A. Equal depreciation charges throughout the asset's life
- B. Higher depreciation charges in the earlier years
- C. Depreciation based only on units produced
- D. Depreciation beginning after the asset is fully paid
Explanation: The reducing-balance method applies a fixed percentage to the asset's declining carrying amount.
Correct answer: Higher depreciation charges in the earlier years- A. Land is always recorded at its residual value
- B. The land and building usually have different useful lives
- C. Buildings cannot be recognized as non-current assets
- D. Land must always be depreciated faster than buildings
Explanation: Land usually has an unlimited useful life, while a building has a finite useful life.
Correct answer: The land and building usually have different useful lives- A. At fair value less future tax charges
- B. At cost less accumulated depreciation and impairment losses
- C. At residual value plus accumulated depreciation
- D. At replacement cost less disposal expenses
Explanation: The cost model carries property, plant and equipment at its cost less accumulated depreciation and accumulated impairment losses.
Correct answer: At cost less accumulated depreciation and impairment losses- A. Depreciation stops until production resumes
- B. Depreciation continues while the machine remains available for use
- C. Depreciation is transferred permanently to repairs expense
- D. Depreciation is recognized only when the machine is sold
Explanation: Temporary idleness does not by itself remove an asset from use for depreciation purposes.
Correct answer: Depreciation continues while the machine remains available for use- A. The number of employees in the finance department
- B. Expected usage and the machine's expected physical wear
- C. The amount of cash held by the business
- D. The market price of unrelated inventory
Explanation: Useful life depends on expected usage, physical wear, technological obsolescence and legal or contractual limits.
Correct answer: Expected usage and the machine's expected physical wear- A. It is immediately charged as an ordinary repair
- B. It is recognized as part of the machine's carrying amount
- C. It is recorded as accumulated depreciation
- D. It is recognized as a liability without an asset
Explanation: A major inspection cost that meets the recognition criteria is capitalized as part of property, plant and equipment.
Correct answer: It is recognized as part of the machine's carrying amount