Two firms are in an identical industry. The infor balance sheets is listed below

Question

Two firms are in an identical industry. The infor balance sheets is listed below. Neither firm changed (bought or sold) 2009 to 2010. Which of the following statements is accurate regarding 6. mation regarding their fixed assets from their respective their fixed assets in any way from Fixed Assets in 2010? The dollar values are in millions. Company B Year Gross Fixed Assets Accumulated Depreciation Net Fixed Assets Company A 2010 2009 2010 2009 12.00 12.00 24.00 24.00 7.00 5.00 10.00 14.00 8.00 16.00 6.00 6.00 A) T B) Company A will likely have to replace its fixed assets before Company B will C) The estimated initial life of Company A's assets are less than those of Company B D) It must be true that Company B has land in its fixed assets while Company A does not he fixed assets of Company B are older than those of Company A

Explanation / Answer

6.Annual depreciation of fixed assets of company A=(7-6)=$1 million

Annual depreciation of fixed assets of company B=(10-8)=$2 million

Years of life of fixed assets of company A=12/1=12 years

Years of life of fixed assets of company B=24/2=12 years

Accumulated depreciation of fixed assets of company A in 2010=$ 7 million= 7 years of depreciation

Accumulated depreciation of fixed assets of company B in 2010=$ 10 million= 5 years of depreciation

Hence A is older

.A)Is not true

Net fixed asset of Company A in 2010=$5 million= 5 years of life

Net fixed asset of Company B in 2010=$14 million= 7 years of life

Hence Company A will likely to replace its assets before company B will.

.B) Correct

Estimated initial life of both the company’s assets are same =12 years

Hence,

.C) not true

If company B had land in its fixed assets, its annual depreciation would have been lower.

Land assets do not depreciate

Hence,

.D) not true

Answer:

B.

Under IFRS, if an asset is revalued ,the upward revaluation does not impact the income statement. The journal entry will be :

Debit asset and credit Revaluation Surplus.

This will only impact the balance sheet .

Hence the answer is:

.A) $0

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