If the Cost of Replacing the Engine on a Motor

question 60

Multiple Choice

If the cost of replacing the engine on a motor vehicle, which increased the vehicles' useful life by five years, was charged as an expense rather than being capitalised and added to the carrying amount of the vehicle, profit would be:

• A) overstated, fixed assets would be understated and equity would be understated.
• B) understated, fixed assets would be understated and equity would be understated.
• C) understated, fixed assets would be understated and equity would be overstated.
• D) overstated, fixed assets would be overstated and equity would be overstated.

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Definitions:

Savings Plan

A program that encourages regular saving by setting aside a certain amount of income for future use, often with tax advantages or interest accrual.

Actuarially Determined

Calculated based on actuarial methods and assumptions, often referring to pension plan contributions or insurance risk assessments.

Pension Funds

Investment pools that collect and invest contributions from workers and employers to provide retirement benefits to the workers.

Banks

Financial institutions licensed to receive deposits and make loans. They also offer various other financial services such as wealth management, currency exchange, and safe deposit boxes.