A Company Recently Replaced a Significant Part of Equipment Carried

question 26

Multiple Choice

A company recently replaced a significant part of equipment carried at cost.Which action would be consistent with AASB 116?

• A) Include cost of replacement part in the asset's carrying amount without regard for the carrying amount of the part replaced.
• B) Revalue the carrying amount of equipment before recognizing the replacement part purchased.
• C) Derecognise the carrying amount of the part replaced and include cost of replacement part in the asset's carrying amount.
• D) Recognise the cost of replacement part as expense as the cost is a material amount.
• E) None of the given answers

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Definitions:

Consolidated Retained Earnings

The accumulated net income of a corporation and its subsidiaries after dividends have been paid out to shareholders.

Gain or Loss

The financial result that occurs when the selling price of an asset differs from its purchase price, either as a profit or a deficit.

Share Issue

A process by which a company distributes new shares to shareholders, either as part of a public offering or a private placement.

Acquisition Differential

The difference between the cost of an acquisition and the fair value of the net identifiable assets acquired.