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:

Weighted-Average Method

An inventory costing method that assigns a weighted average cost to each unit of inventory on hand based on the cost of goods available for sale and the units available for sale.

FIFO Method

First-In, First-Out; an inventory valuation method where the oldest inventory items are recorded as sold first.

Cost Per Equivalent Unit

A calculation used in process costing that determines the cost assigned to each unit produced, taking into account partially completed units.

Conversion Costs

Costs incurred to convert raw materials into finished products, typically including labor and overhead.