Why should Ahmed, the owner of a manufacturing business, charge depreciation on his factory equipment?
to plan ahead for replacement of the equipment
to set an appropriate resale value for the equipment
to spread cash flow over a number of years
to spread the cost of the equipment over its useful life
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Which of the following statements about depreciation is correct?
It is a fund that sets aside money to replace a non-current asset.
It is a monetary expense, because it involves money leaving the business.
It is a way to estimate the loss in value of a non-current asset over its useful life.
It is recorded in the nominal ledger and the income statement
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Willard uses the reducing balance method of depreciation.
What effect will this have over the life of one of his business's non-current assets?
a constant amount of depreciation charged each year
more depreciation charged in the early years
more depreciation charged in the later years
the non-current asset is revalued every year
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Margery bought a new non-current asset for her business.
Why did she choose to use the reducing balance method to depreciate it?
The benefits from using the non-current asset will be less in the earlier years.
The money set aside to replace the non-current asset will increase more quickly.
The non-current asset will lose value more quickly in the later years.
The value of the non-current asset will be affected by rapid technological change.
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Abaddon provided the following information for his auto repair business.
$ | ||
at 1 April 2023 | equipment at cost | 30 000 |
provision for depreciation of equipment | 8 130 | |
loose tools at valuation | 1 900 |
Equipment is depreciated at 10% per annum using the reducing balance method.
Additional loose tools were purchased in December 2023 for $250. No depreciation is provided on loose tools purchased during the financial year.
On 31 March 2024, loose tools more than 12 months old were valued at $1 550.
What was the depreciation charge for the year ended 31 March 2024?
equipment $ | loose tools $ | |
|---|---|---|
A | 2 187 | 350 |
B | 2 187 | 600 |
C | 3 000 | 350 |
D | 3 000 | 600 |
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A business bought two assets, X and Y, on 1 January 2024. Each asset cost $5 000.
The business depreciates asset X by 20% per annum using the reducing balance method. It depreciates asset Y by 20% per annum using the straight-line method. The business charges a full year of depreciation in the year an asset is purchased.
Which of the following statements are correct?
asset X will be fully depreciated before asset Y | in 2024 the depreciation charge is lower for asset X than for asset Y | |
|---|---|---|
A | false | false |
B | false | true |
C | true | false |
D | true | true |
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Edgar bought machinery for $7430. He later sold it for $2985, at which time the disposal account showed a profit on disposal of $422.
How much was the depreciation up to the date of the disposal, and was it recorded as a credit or a debit in the disposal account?
$4023 credit
$4023 debit
$4867 credit
$4867 debit
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Hayal depreciates his delivery vehicle using the straight-line method, at 20% per annum.
The delivery vehicle cost $18 000.
The depreciation for the current financial year was incorrectly calculated at 25% per annum.
How will correcting the error affect the profit for the year?
decrease $900
decrease $4 500
increase $900
increase $4 500
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Jarli provided the following balances at 31 December.
$ | |
equipment at cost | 38 000 |
provision for depreciation of equipment | 16 800 |
Depreciation for the year was calculated at 15% on cost, and is included in the provision for depreciation.
After extracting the balances, Jarli discovered that equipment repairs costing $2 500 had been debited in error to the equipment account.
What is the correct balance on the provision for depreciation of equipment account?
$14 300
$16 425
$17 175
$19 300
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Anoushka's financial year ends on 30 September.
She bought a motor vehicle for $12 000 on 1 October 2022, and sold it for $6 240 on 1 October 2024.
She uses the reducing balance method of depreciation at 20% per annum.
What should be recorded in the income statement for the year ended 30 September 2025 for the disposal of the motor vehicle?
$960 loss
$960 profit
$1440 loss
$1440 profit
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A motor vehicle was originally purchased for $17 500 and had been depreciated by $13 000. The vehicle was sold for $5 000.
How should the profit or loss on the sale be shown in the disposal account?
$500 credit
$500 debit
$5 000 credit
$5 000 debit
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At the start of her financial year, Namid purchased equipment for her business costing $1 320.
The equipment was estimated to have a working life of 6 years and a scrap value of $60.
The asset was depreciated using the straight-line method.
At the end of 4 years the equipment was sold for $410.
What was the profit or loss on disposal?
$10 profit
$30 loss
$70 loss
$350 profit
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Nakula purchased a new machine on the first day of his financial year, at a cost of $18 000.
His old machine had a book value of $4700 on that date. Nakula was allowed $3500 for the old machine in part exchange. He paid the balance by cheque.
Nakula depreciates machinery at 20% per annum.
How much should be charged to Nakula's income statement for the year?
$1200
$2400
$3600
$4800
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