Reference no: EM133106328

Question 1 - Ranger Inc., an entity subject to ASPE, has several accounting changes to adjust for in the current year. Which of the following would be considered a change in estimate?

a) In order to improve the relevance of its financial statements, Ranger had decided to account for income taxes under the future income taxes method, instead of the taxes payable method.

b) Ranger has determined that its factories are deteriorating faster than originally anticipated, so it will now depreciate the factories over 20 years instead of 25 years.

c) Ranger has determined that average cost is a better inventory valuation method for its current product line and has begun accounting for inventory this year using this method. Previously, inventory was accounted for using FIFO.

d) Ranger discovered that the full sale price for a sales arrangement involving a good and a three-year service contract was recognized as revenue, when the service portion should have been deferred.

Question 2 - An entity that reports under ASPE, purchased equipment at a cost of $2,500,000 on December 31, 2015. The equipment's useful life was estimated at 10 years with a $500,000 residual value. During 2020, the entity estimated that the equipment would be used until December 31, 2027, with a residual value of $300,000.

What is the depreciation expense for the year ended December 31, 2020? Assume that the entity uses the straight-line method.

a) $150,000

b) $171,429

c) $175,000

d) $200,000

Question 3 - Starfish & Co. (Starfish) bought a sailboat for $48,000. At acquisition date, the useful life of the boat was expected to be 30 years, with an estimated residual value of $6,000. After the boat had been depreciated for 20 years, it was estimated that the useful life of the boat had increased to 35 years, at which time the residual value would be $0.

Assuming Starfish reports under ASPE, what is the revised annual straight-line depreciation charge following the reassessment of the boat's useful life in Starfish's 21st year of owning the sailboat?

a) $571

b) $933

c) $1,067

d) $1,333

Question 4 - On January 1, 2016, Dundas Inc. (Dundas) purchased equipment for $480,000. At the time of purchase, Dundas estimated that the equipment would last eight years and have a residual value of $30,000. Depreciation is being recorded on a straight-line basis and the company has a December 31 year end. In late December 2020, engineers reassessed the equipment and concluded that it would last five more years (from January 1, 2020) and have a residual value of $20,000. Dundas reports under IFRS.

What is the correct amount that will be debited to accumulated depreciation in December 2020 to reflect the above new information if the depreciation expense for 2020 has already been recorded under the old assumptions?

a) $9,250.

b) $12,000

c) $20,500

d) $25,694

Question 5 - Wonderful Windows Inc. (Wonderful Windows) manufactures wood frame windows and frames and is preparing financial statements for the current year end.

Assuming Wonderful Windows reports under IFRS, which of the following circumstances requires prospective treatment?

a) Wonderful Windows amortizes its delivery trucks over eight years, but it has been discovered that all trucks purchased last year have been amortized over five years.

b) Wonderful Windows purchased some new cutting equipment last year and determined it should be amortized over six years. However, technology changes in the current year have resulted in management assessing that this equipment will now need to be replaced in two years.

c) During the year, Wonderful Windows expensed an allocation of direct labour costs which should have been added to ending inventory. This resulted in an overstatement of COGS last year.

d) Wonderful Windows has decided to change its inventory costing method from WA to FIFO, to be more comparable to its closest competitors.

Question 6 - Which of the following is a difference between IFRS and ASPE regarding accounting for changes in accounting policies?

a) There are no differences between IFRS and ASPE in accounting for changes in accounting policies.

b) ASPE only allows for changes in accounting policy when the change provides reliable or more relevant information.

c) ASPE does not require disclosures about the expected effect on the entities' financial results of standards that have been issued but are not yet effective.

d) ASPE requires an opening balance sheet for one additional earlier comparative period, when retrospective treatment is required.