An Accountant Is Not Sure on How to Recognise an Asset

question 45

Multiple Choice

An accountant is not sure on how to recognise an asset that is purchased in excess of fair value.Which of the following action will you recommend?

• A) Recognise the asset at fair value and the excess as Goodwill.
• B) Recognise the asset at fair value and the excess as a loss on purchase.
• C) Recognise the asset at fair value and the excess as receivable from supplier.
• D) Recognise the asset at cost.
• E) None of the given answers.

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Definitions:

Depreciation Expense

The allocated cost of an asset over its useful life, used to account for declines in value due to use and wear and tear.

Salvage Value

Salvage value is the estimated residual value of an asset at the end of its useful life, reflecting what the asset can be sold for once it is no longer needed.

Accelerated Depreciation

A method of depreciation that allows for higher depreciation expenses in the initial years of an asset's life and lower charges later on.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.