For Capital improvement extending useful capacity, identify the correct interpretation.
Correct answer: A
It creates benefits beyond routine maintenance.
Accountancy
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Evaluate the two proposed answers. Which are supported? I. Carrying amount — the correct interpretation: Recorded amount after relevant accumulated depreciation and impairment. II. Inventory write-down — the correct interpretation: Equal annual charge when estimates remain unchanged.
Correct answer: D
I is correct: Carrying amount → Recorded amount after relevant accumulated depreciation and impairment. It need not equal current market value. II is incorrect: Inventory write-down → Reduction when carrying cost exceeds recoverable inventory value under the rule. The loss is recognised rather than retaining an overstated asset.
For Net realisable value, identify the correct interpretation.
Correct answer: A
It is used in inventory measurement.
Evaluate the two proposed answers. Which are supported? I. Routine repair maintaining existing condition — the correct interpretation: Estimated selling price less estimated completion and selling costs. II. Periodic inventory system — the correct interpretation: Inventory and cost of sales determined with periodic counts and adjustments.
Correct answer: D
I is incorrect: Routine repair maintaining existing condition → Normally a period expense. It does not by itself create a separately recognisable long-term improvement. II is correct: Periodic inventory system → Inventory and cost of sales determined with periodic counts and adjustments. Purchases are accumulated during the period.
For Units-of-production depreciation, identify the correct interpretation.
Correct answer: A
It links depreciation to productive use.
Evaluate the two proposed answers. Which are supported? I. Impairment — the correct interpretation: Reduction when an asset's carrying amount is not recoverable under the applicable test. II. FIFO cost flow — the correct interpretation: Earliest purchase costs are assigned to goods sold first.
Correct answer: B
I is correct: Impairment → Reduction when an asset's carrying amount is not recoverable under the applicable test. It is distinct from routine systematic depreciation. II is correct: FIFO cost flow → Earliest purchase costs are assigned to goods sold first. It is an accounting cost assumption, not a requirement for physical movement.
For Inventory write-down, identify the correct interpretation.
Correct answer: D
The loss is recognised rather than retaining an overstated asset.
Evaluate the two proposed answers. Which are supported? I. Straight-line depreciation — the correct interpretation: Equal annual charge when estimates remain unchanged. II. Routine repair maintaining existing condition — the correct interpretation: Normally a period expense.
Correct answer: B
I is correct: Straight-line depreciation → Equal annual charge when estimates remain unchanged. Depreciable amount is spread over useful life. II is correct: Routine repair maintaining existing condition → Normally a period expense. It does not by itself create a separately recognisable long-term improvement.
For Useful life, identify the correct interpretation.
Correct answer: D
It may be shorter than the asset's physical life.
Evaluate the two proposed answers. Which are supported? I. Perpetual inventory system — the correct interpretation: Inventory records updated continuously for movements. II. Net realisable value — the correct interpretation: Estimated selling price less estimated completion and selling costs.
Correct answer: B
I is correct: Perpetual inventory system → Inventory records updated continuously for movements. It supports ongoing quantity and cost information. II is correct: Net realisable value → Estimated selling price less estimated completion and selling costs. It is used in inventory measurement.
For FIFO cost flow, identify the correct interpretation.
Correct answer: C
It is an accounting cost assumption, not a requirement for physical movement.
Evaluate the two proposed answers. Which are supported? I. Residual value — the correct interpretation: Reduction when an asset's carrying amount is not recoverable under the applicable test. II. Periodic inventory system — the correct interpretation: Fixed rate applied to declining carrying amount.
Correct answer: B
I is incorrect: Residual value → Estimated disposal proceeds net of disposal costs at the end of useful life. It reduces the depreciable amount. II is incorrect: Periodic inventory system → Inventory and cost of sales determined with periodic counts and adjustments. Purchases are accumulated during the period.
For Reducing-balance depreciation, identify the correct interpretation.
Correct answer: C
Charges are higher in earlier years.
Evaluate the two proposed answers. Which are supported? I. Routine repair maintaining existing condition — the correct interpretation: Earliest purchase costs are assigned to goods sold first. II. Inventory write-down — the correct interpretation: Equal annual charge when estimates remain unchanged.
Correct answer: B
I is incorrect: Routine repair maintaining existing condition → Normally a period expense. It does not by itself create a separately recognisable long-term improvement. II is incorrect: Inventory write-down → Reduction when carrying cost exceeds recoverable inventory value under the rule. The loss is recognised rather than retaining an overstated asset.
For Impairment, identify the correct interpretation.
Correct answer: A
It is distinct from routine systematic depreciation.
Evaluate the two proposed answers. Which are supported? I. Net realisable value — the correct interpretation: Estimated selling price less estimated completion and selling costs. II. Routine repair maintaining existing condition — the correct interpretation: Average unit cost weighted by quantities purchased.
Correct answer: C
I is correct: Net realisable value → Estimated selling price less estimated completion and selling costs. It is used in inventory measurement. II is incorrect: Routine repair maintaining existing condition → Normally a period expense. It does not by itself create a separately recognisable long-term improvement.
Evaluate the two proposed answers. Which are supported? I. Perpetual inventory system — the correct interpretation: Inventory and cost of sales determined with periodic counts and adjustments. II. Units-of-production depreciation — the correct interpretation: Charge based on actual usage or output.
Correct answer: A
I is incorrect: Perpetual inventory system → Inventory records updated continuously for movements. It supports ongoing quantity and cost information. II is correct: Units-of-production depreciation → Charge based on actual usage or output. It links depreciation to productive use.
For Residual value, identify the correct interpretation.
Correct answer: B
It reduces the depreciable amount.
Evaluate the two proposed answers. Which are supported? I. Net realisable value — the correct interpretation: Inventory records updated continuously for movements. II. Straight-line depreciation — the correct interpretation: Fixed rate applied to declining carrying amount.
Correct answer: A
I is incorrect: Net realisable value → Estimated selling price less estimated completion and selling costs. It is used in inventory measurement. II is incorrect: Straight-line depreciation → Equal annual charge when estimates remain unchanged. Depreciable amount is spread over useful life.
For Weighted-average inventory cost, identify the correct interpretation.
Correct answer: D
It combines costs rather than simply averaging quoted prices.
Evaluate the two proposed answers. Which are supported? I. FIFO cost flow — the correct interpretation: Earliest purchase costs are assigned to goods sold first. II. Routine repair maintaining existing condition — the correct interpretation: Normally a period expense.
Correct answer: B
I is correct: FIFO cost flow → Earliest purchase costs are assigned to goods sold first. It is an accounting cost assumption, not a requirement for physical movement. II is correct: Routine repair maintaining existing condition → Normally a period expense. It does not by itself create a separately recognisable long-term improvement.
For Straight-line depreciation, identify the correct interpretation.
Correct answer: C
Depreciable amount is spread over useful life.
Evaluate the two proposed answers. Which are supported? I. Inventory write-down — the correct interpretation: Reduction when carrying cost exceeds recoverable inventory value under the rule. II. Impairment — the correct interpretation: Reduction when an asset's carrying amount is not recoverable under the applicable test.
Correct answer: B
I is correct: Inventory write-down → Reduction when carrying cost exceeds recoverable inventory value under the rule. The loss is recognised rather than retaining an overstated asset. II is correct: Impairment → Reduction when an asset's carrying amount is not recoverable under the applicable test. It is distinct from routine systematic depreciation.
For Perpetual inventory system, identify the correct interpretation.
Correct answer: D
It supports ongoing quantity and cost information.
Evaluate the two proposed answers. Which are supported? I. Periodic inventory system — the correct interpretation: Charge based on actual usage or output. II. Reducing-balance depreciation — the correct interpretation: Estimated disposal proceeds net of disposal costs at the end of useful life.
Correct answer: B
I is incorrect: Periodic inventory system → Inventory and cost of sales determined with periodic counts and adjustments. Purchases are accumulated during the period. II is incorrect: Reducing-balance depreciation → Fixed rate applied to declining carrying amount. Charges are higher in earlier years.