1. What is IND AS 16?
Answer: IND AS 16 is a standard that sets out the accounting treatment for property, plant, and equipment. It provides guidance on the recognition, measurement, and disclosure of such assets.
2. What is the scope of IND AS 16?
The standard applies to all tangible assets except for those that are held for sale in the ordinary course of business, biological assets, mineral rights, and certain assets that are accounted for under the standard on leases.
3. What is the treatment of repairs and maintenance expenses under IND AS 16?
Repairs and maintenance expenses are generally recognized as expenses in the period in which they are incurred. However, if the repair or maintenance activity increases the future economic benefits of an asset beyond its originally assessed standard of performance, then such expenditure is capitalized and depreciated over the remaining useful life of the asset.
4. What are the depreciation methods allowed under IND AS 16?
The standard allows entities to use a variety of depreciation methods, such as the straight-line method, diminishing balance method, or units of production method. The method used should reflect the pattern in which the asset's future economic benefits are expected to be consumed.
5. How does IND AS 16 treat impairment of assets?
An asset is considered to be impaired if its carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal or its value in use. When an asset is impaired, the carrying amount is reduced to its recoverable amount, and an impairment loss is recognized in the income statement.
6. What are the disclosure requirements under IND AS 16?
Entities are required to disclose information about the measurement basis used for property, plant and equipment, the depreciation methods used, the useful lives or depreciation rates used, and any restrictions on title or pledges as security for liabilities. If an entity has revalued its assets or recognized impairment losses, it should also disclose information about those events. The disclosures should be included in the notes to the financial statements.
7. What is the definition of Property, Plant and Equipment (PPE) under IND AS 16?
PPE is defined as tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and are expected to be used for more than one accounting period.
8. Can an entity revalue its PPE under IND AS 16?
Yes, an entity can choose to revalue its PPE to fair value if it is able to determine the fair value of the asset reliably. The revaluation should be carried out with sufficient regularity so that the carrying amount of the asset does not differ materially from its fair value.
9. How is the gain or loss on revaluation of PPE recognized under IND AS 16?
If the fair value of the PPE is higher than its carrying amount, the difference is recognized as a revaluation surplus in other comprehensive income (OCI). If the fair value is lower, the difference is recognized as a revaluation loss in the income statement. Revaluation gains and losses are recorded in a separate component of equity, known as the revaluation reserve.
10. Can an entity reverse a revaluation loss recognized on PPE under IND AS 16?
An entity can reverse a revaluation loss that was recognized in the income statement to the extent that it is a recovery of a previous impairment loss. Any remaining amount of the revaluation loss should be recognized in the income statement.
11. How is the derecognition of PPE accounted for under IND AS 16?
When PPE is disposed of or scrapped, the carrying amount of the asset is removed from the balance sheet and any gain or loss on disposal is recognized in the income statement. The difference between the proceeds from disposal and the carrying amount of the asset is recognized as a gain or loss.
12. Can an entity use a different useful life for an asset than what is prescribed by IND AS 16?
An entity can use a different useful life for an asset if it can demonstrate that the useful life is different from the standard useful life due to factors such as technical obsolescence, physical deterioration or inadequacy of the asset, changes in the environment in which the asset operates, or legal or other limits on the use of the asset. The entity should disclose the reasons for using a different useful life and the effect on the financial statements.
13. What is the treatment of borrowing costs related to PPE under IND AS 16?
Borrowing costs related to the acquisition, construction, or production of PPE should be capitalized if they meet the criteria for capitalization. Otherwise, they should be expensed in the period in which they are incurred.
14. How does IND AS 16 define the cost of PPE?
The cost of PPE includes its purchase price, any direct costs of bringing the asset to its working condition and location for its intended use, and any initial estimate of the costs of dismantling and removing the asset and restoring the site on which it is located. The cost of PPE also includes any borrowing costs that are capitalized.
15. How are improvements to existing PPE accounted for under IND AS 16?
If an improvement to existing PPE increases the future economic benefits of the asset beyond its previously assessed standard of performance, the expenditure on the improvement should be capitalized and depreciated over the remaining useful life of the asset.
16. Can an entity change the depreciation method for an asset under IND AS 16?
A change in depreciation method should be accounted for as a change in accounting estimate and should be applied prospectively from the date of the change. The effect of the change on the carrying amount of the asset should be recognized in profit or loss.
17. How are PPE assets that are part of a disposal group accounted for under IND AS 16?
If PPE assets are part of a disposal group, the carrying amount of the assets should be allocated to the disposal group based on their relative fair values. Any gain or loss on disposal of the disposal group should be recognized in the income statement.
18. What is the accounting treatment for dismantling and restoration costs under IND AS 16?
The cost of dismantling and restoring an asset should be included in the cost of PPE if it is probable that the entity will be required to incur such costs in the future, and the amount of the obligation can be estimated reliably. The cost should be recognized over the life of the asset as a provision, and the corresponding increase in the carrying amount of the asset should be depreciated over its useful life.
19. What is the initial measurement of Property, Plant and Equipment (PPE) under IND AS 16?
A. Cost
B. Fair value
C. Net realizable value
D. Market value
Answer: A. Cost
20. How is the depreciation of PPE calculated under IND AS 16?
A. Straight-line method
B. Units of production method
C. Sum-of-the-years'-digits method
D. All of the above
Answer: D. All of the above
21. Can an entity revalue its PPE to fair value under IND AS 16?
A. Yes, but only if it is required by law
B. No, revaluation is not allowed under IND AS 16
C. Yes, but only if it is able to determine the fair value of the asset reliably
D. Yes, but only if the asset is held for investment purposes
Answer: C. Yes, but only if it is able to determine the fair value of the asset reliably
22. How is the gain or loss on revaluation of PPE recognized under IND AS 16?
A. As a revaluation surplus or loss in other comprehensive income (OCI)
B. As a gain or loss in the income statement
C. Both A and B
D. None of the above
Answer: A. As a revaluation surplus or loss in other comprehensive income (OCI)
23. How is the derecognition of PPE accounted for under IND AS 16?
A. Any gain or loss on disposal is recognized in the income statement
B. The carrying amount of the asset is removed from the balance sheet
C. Both A and B
D. None of the above
Answer: C. Both A and B
24. How is the cost of PPE measured under IND AS 16?
A. At the asset's fair value
B. At the asset's replacement cost
C. At the asset's selling price
D. At the asset's historical cost
Answer: D. At the asset's historical cost
25. What is the objective of depreciating PPE under IND AS 16?
A. To allocate the cost of the asset over its useful life
B. To estimate the fair value of the asset
C. To determine the selling price of the asset
D. To increase the carrying amount of the asset
Answer: A. To allocate the cost of the asset over its useful life
26. How is the residual value of PPE determined under IND AS 16?
A. Based on the asset's historical cost
B. Based on the asset's replacement cost
C. Based on the asset's fair value
D. Based on the asset's selling price
Answer: C. Based on the asset's fair value
27. Can the depreciation method used for an asset be changed under IND AS 16?
A. Yes, but only with the approval of the auditors
B. Yes, but only if it results in a lower depreciation expense
C. Yes, but only if it results in a higher depreciation expense
D. Yes, but only if it is applied retrospectively and results in a more appropriate allocation of the asset's cost
Answer: D. Yes, but only if it is applied retrospectively and results in a more appropriate allocation of the asset's cost
28. How is impairment of PPE accounted for under IND AS 16?
A. The carrying amount of the asset is reduced to its recoverable amount, and any loss is recognized in the income statement
B. The carrying amount of the asset is reduced to its fair value, and any loss is recognized in the income statement
C. The carrying amount of the asset is increased to its recoverable amount, and any gain is recognized in the income statement
D. The carrying amount of the asset is increased to its fair value, and any gain is recognized in the income statement
Answer: A. The carrying amount of the asset is reduced to its recoverable amount, and any loss is recognized in the income statement
29. What is the definition of Property, Plant and Equipment (PPE) under IND AS 16?
A. Assets held for sale in the ordinary course of business
B. Assets held for investment purposes
C. Assets held for use in the production or supply of goods or services
D. Assets held for use in research and development activities
Answer: C. Assets held for use in the production or supply of goods or services
30. How should a change in the estimated useful life of PPE be accounted for under IND AS 16?
A. The change should be accounted for prospectively from the current period onwards
B. The change should be accounted for retrospectively by adjusting the carrying amount of the asset and the accumulated depreciation
C. The change should be accounted for by recognizing a gain or loss in the income statement
D. The change should be accounted for by revaluing the asset to fair value
Answer: B. The change should be accounted for retrospectively by adjusting the carrying amount of the asset and the accumulated depreciation
31. When should an entity recognize an impairment loss on PPE under IND AS 16?
A. When the carrying amount of the asset exceeds its fair value
B. When the carrying amount of the asset exceeds its recoverable amount
C. When the asset is sold at a loss
D. When the asset's market value declines below its original cost
Answer: B. When the carrying amount of the asset exceeds its recoverable amount
32. How should a gain on the disposal of PPE be accounted for under IND AS 16?
A. The gain should be recognized in the income statement
B. The gain should be recognized in other comprehensive income (OCI)
C. The gain should be offset against any previously recognized impairment losses on the same class of asset
D. The gain should be recognized as a revaluation surplus in OCI
Answer: A. The gain should be recognized in the income statement
33. Can an entity change its accounting policy for the recognition of PPE under IND AS 16?
A. Yes, but only if it results in a more appropriate presentation of the entity's financial statements
B. Yes, but only if it results in a higher profit or loss for the entity
C. No, the accounting policy for the recognition of PPE cannot be changed
D. Yes, but only with the approval of the regulatory authorities
Answer: A. Yes, but only if it results in a more appropriate presentation of the entity's financial statements
34. What is the definition of Property, Plant and Equipment (PPE) under IND AS 16?
A. Assets held for sale in the ordinary course of business
B. Assets held for investment purposes
C. Assets held for use in the production or supply of goods or services
D. Assets held for use in research and development activities
Answer: C. Assets held for use in the production or supply of goods or services
35. How should a change in the estimated useful life of PPE be accounted for under IND AS 16?
A. The change should be accounted for prospectively from the current period onwards
B. The change should be accounted for retrospectively by adjusting the carrying amount of the asset and the accumulated depreciation
C. The change should be accounted for by recognizing a gain or loss in the income statement
D. The change should be accounted for by revaluing the asset to fair value
Answer: B. The change should be accounted for retrospectively by adjusting the carrying amount of the asset and the accumulated depreciation
36. When should an entity recognize an impairment loss on PPE under IND AS 16? A. When the carrying amount of the asset exceeds its fair value
B. When the carrying amount of the asset exceeds its recoverable amount
C. When the asset is sold at a loss
D. When the asset's market value declines below its original cost
Answer: B. When the carrying amount of the asset exceeds its recoverable amount
37. How should a gain on the disposal of PPE be accounted for under IND AS 16? A. The gain should be recognized in the income statement
B. The gain should be recognized in other comprehensive income (OCI)
C. The gain should be offset against any previously recognized impairment losses on the same class of asset
D. The gain should be recognized as a revaluation surplus in OCI
Answer: A. The gain should be recognized in the income statement
38. Can an entity change its accounting policy for the recognition of PPE under IND AS 16?
A. Yes, but only if it results in a more appropriate presentation of the entity's financial statements
B. Yes, but only if it results in a higher profit or loss for the entity
C. No, the accounting policy for the recognition of PPE cannot be changed
D. Yes, but only with the approval of the regulatory authorities
Answer: A. Yes, but only if it results in a more appropriate presentation of the entity's financial statements
39. When should an entity recognize an item of PPE as an asset under IND AS 16? A. When the entity has legal ownership of the asset
B. When the asset is available for use in the entity's operations
C. When the entity has paid for the asset
D. When the asset is physically located on the entity's premises
Answer: B. When the asset is available for use in the entity's operations
40. What is the definition of the cost of an item of PPE under IND AS 16?
A. The fair value of the item at the time of acquisition
B. The historical cost of the item at the time of acquisition
C. The net present value of the future cash flows expected to be generated by the item
D. The replacement cost of the item at the time of acquisition
Answer: B. The historical cost of the item at the time of acquisition
41. How should an entity account for repairs and maintenance costs on an item of PPE under IND AS 16?
A. The costs should be capitalized as part of the cost of the asset
B. The costs should be expensed in the period in which they are incurred
C. The costs should be amortized over the useful life of the asset
D. The costs should be recognized as a revaluation surplus in OCI
Answer: B. The costs should be expensed in the period in which they are incurred
42. When should an entity cease to depreciate an item of PPE under IND AS 16?
A. When the item is fully depreciated
B. When the item is no longer used in the entity's operations
C. When the item is sold or disposed of
D. When the item's residual value is zero
Answer: B. When the item is no longer used in the entity's operations
43. How should an entity account for the costs of dismantling and removing an item of PPE under IND AS 16?
A. The costs should be capitalized as part of the cost of the asset
B. The costs should be expensed in the period in which they are incurred
C. The costs should be recognized as a revaluation surplus in OCI
D. The costs should be recognized as a liability and measured at the present value of the expected cash outflows
Answer: A. The costs should be capitalized as part of the cost of the asset
44. How does IND AS 16 define Property, Plant and Equipment (PPE)?
A. PPE are tangible assets held for use in the production or supply of goods or services
B. PPE are intangible assets held for use in the production or supply of goods or services
C. PPE are assets that are held for sale in the ordinary course of business
D. PPE are investments in equity instruments of other entities
Answer: A. PPE are tangible assets held for use in the production or supply of goods or services
45. Under IND AS 16, how should an entity account for borrowing costs related to the construction of PPE?
A. The borrowing costs should be expensed in the period in which they are incurred
B. The borrowing costs should be capitalized as part of the cost of the PPE
C. The borrowing costs should be recognized as a liability and measured at the present value of the expected cash outflows
D. The borrowing costs should be recognized as a revaluation surplus in other comprehensive income (OCI)
Answer: B. The borrowing costs should be capitalized as part of the cost of the PPE
46. When should an entity revalue its PPE under IND AS 16?
A. The entity should revalue its PPE every year
B. The entity should revalue its PPE when there is a change in fair value of the assets
C. The entity should revalue its PPE when there is a change in accounting policy
D. The entity should never revalue its PPE
Answer: B. The entity should revalue its PPE when there is a change in fair value of the assets
47. How does IND AS 16 require an entity to account for the disposal of PPE?
A. The entity should recognize a gain or loss on disposal equal to the difference between the proceeds from disposal and the carrying amount of the asset
B. The entity should reverse any accumulated depreciation on the asset and recognize the net carrying amount as a gain or loss on disposal
C. The entity should recognize the carrying amount of the asset as a liability until the disposal transaction is complete
D. The entity should recognize any gain or loss on disposal as a revaluation surplus in other comprehensive income (OCI)
Answer: A. The entity should recognize a gain or loss on disposal equal to the difference between the proceeds from disposal and the carrying amount of the asset
48. How should an entity account for a change in its estimate of the useful life of an item of PPE under IND AS 16?
A. The entity should adjust the useful life and depreciate the asset prospectively over the revised remaining useful life
B. The entity should adjust the useful life and recalculate the depreciation expense for all prior periods affected by the change
C. The entity should recognize the change in estimate as a revaluation surplus in other comprehensive income (OCI)
D. The entity should recognize the change in estimate as a prior period adjustment in the current period's statement of profit and loss
Answer: A. The entity should adjust the useful life and depreciate the asset prospectively over the revised remaining useful life
49. When should an entity start depreciating its Property, Plant, and Equipment (PPE) under IND AS 16?
A. When the asset is fully constructed and ready to use
B. When the asset is acquired
C. When the asset is under construction
D. When the asset is rented out to a third party
Answer: A. When the asset is fully constructed and ready to use
50. What is the purpose of calculating the residual value of a PPE asset under IND AS 16?
A. To estimate the value of the asset at the end of its useful life
B. To determine the depreciation method to be used
C. To determine the fair value of the asset
D. To determine the impairment loss of the asset
Answer: A. To estimate the value of the asset at the end of its useful life
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