Palm Beach Ltd Has Elected to Adopt the Allowed Alternative

question 61

Multiple Choice

Palm Beach Ltd has elected to adopt the allowed alternative treatment to account for some of its property,plant and equipment.The information available for the class of assets the entity wishes to covert to revaluation model follows.
$$\begin{array} { | l | r | r | r | } \hline { \text { Asset class } } & { \text { Cost } } & \begin{array} { c } \text { Accumulated } \\\text { depreciation }\end{array} & \text { Fair value } \\\hline & & & \\\hline \text { Machinery } & 45000 & 35000 & 7500 \\\hline \text { Motor vehicles } & 64000 & 8000 & 40000 \\\hline \text { Office equipment } & 25000 & 5000 & 30000 \\\hline & & & \\\hline\end{array}$$
Which of the following statements is correct if Palm Beach Ltd is to comply with AASB 116?

• A) When office equipment is revalued, net profit will increase $10 000.
• B) When machinery is revalued, net profit will increase by $2500.
• C) When motor vehicles are revalued, net profit will decrease by $16 000.
• D) When all assets are revalued, net profit will increase by $8500.

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Definitions:

Availability Delay

The lag time between when a deposit is made in a bank account and when the funds are available for use.

Bank Releases

Legal documents indicating that a bank has released its claim on assets, typically after a loan has been paid off.

Collection Time

The typical duration a company waits to collect payments from its clients following a sale.

Lockbox System

A service offered by banks to process payments quickly by having those payments mailed directly to a secure post-office box, from which the bank collects and deposits into the company's account.