Exam code: 4AC1
A business sells a non‑current asset for $3500. The non‑current asset had an original cost of $12500 and had been depreciated by $8000
Identify the profit or loss on disposal.
$1000 profit
$1000 loss
$4500 profit
$4500 loss
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On 1 May 2023 the balance on the motor vehicles cost account was $172000 and the balance on the motor vehicles provision for depreciation account was $85000
On 30 September 2023 Alex sold a motor vehicle for $16000 and received a bank transfer in full settlement.
This motor vehicle had been purchased on 31 March 2022 for $36000 and had a residual value of $8000
Alex depreciates motor vehicles at 20% per annum using the straight line method. A full year’s depreciation is charged in the year of purchase but none in the year of disposal.
Prepare the motor vehicles – provision for depreciation account for the year ended 30 April 2024. Balance the account at this date and bring the balance down on 1 May 2024.
Motor Vehicles – Provision for Depreciation Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
Explain, referring to an accounting concept, one reason why it is necessary for a business to account for depreciation on its non‑current assets.
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Explain one reason why it is necessary to provide for depreciation on non‑current assets.
On 1 January 2022 the balance on the motor vehicles cost account was $76600
On 1 March 2022 a motor vehicle was sold for $12000, payment being received by cheque. This motor vehicle was originally purchased on 1 January 2020 for $18000
On 1 June 2022 a new motor vehicle was purchased costing $21500, paid for by cheque.
Motor vehicles are depreciated at 25% per annum using the reducing balance method. A full year’s depreciation is charged in the year of purchase but none in the year of disposal.
Prepare the following accounts for the year ended 31 December 2022.
Motor Vehicles – Cost Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
Disposal Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
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A business purchases a machine for $40000. Depreciation is charged at 25% per annum on a straight line basis.
Identify the net book value of the machine after two years.
$10000
$20000
$22500
$30000
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Identify why a business depreciates a non-current asset.
To know the profit or loss on disposal
To know the value at the end of its useful life
To provide cash for its replacement
To spread the cost over its expected useful life
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Carson depreciates his computer equipment using the straight line method at 20% per annum. A full year’s depreciation is charged in the year of purchase but none in the year of disposal.
On 1 September 2021 the balances were:
Computer equipment – cost $16 800
Computer equipment – provision for depreciation $ 9 200
On 1 May 2022, computer equipment originally purchased on 1 March 2020 for $3 600, was sold for $1 950
Prepare the following accounts for the year ended 31 August 2022.
Computer Equipment – Provision for Depreciation Account
Date | Details | $ | Date | Details | $ |
Disposal Account
Date | Details | $ | Date | Details | $ |
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Identify the main purpose of providing depreciation on non-current assets.
To know the profit or loss on disposal
To provide funds for the replacement of the asset
To show the market value of the asset
To spread the cost of the asset over its useful life
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State two causes of depreciation.
Tanet prepares his financial statements to 31 March and he provided the following information at 1 April 2021.
$ | |
|---|---|
Motor vehicles – cost | 68 000 |
Motor vehicles – provision for depreciation | 18 240 |
On 30 June 2021, a motor vehicle purchased on 1 February 2019 costing $30000 was sold for $16400. The sale proceeds were received by credit transfer.
Tanet depreciates motor vehicles at 20% per annum using the reducing balance method. A full year’s depreciation is charged in the year of purchase but none in the year of disposal.
Calculate the carrying value at 30 June 2021 of the motor vehicle that was sold.
Prepare the provision for depreciation motor vehicles account for the year ended 31 March 2022. Balance the account on that date and bring the balance down on 1 April 2022.
Provision for Depreciation - Motor Vehicles Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
Prepare the disposal account.
Disposal Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
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Hunter started in business on 1 April 2018. On that date he purchased Machine A for $26 000 and on 1 December 2018 he purchased Machine B for $16 000.
Depreciation is charged at 10% per annum using the reducing balance method.
A full year’s depreciation is charged in the year of purchase and none in the year of disposal.
Calculate the balance on the machinery – provision for depreciation account at 31 March 2019.
On 1 January 2020 Hunter sold Machine A for $18 000
Calculate the profit or loss on the disposal of Machine A.
Prepare the machinery – provision for depreciation account for the year ended 31 March 2020. Balance the account on this date and bring the balance down on 1 April 2020.
Machinery – Provision for Depreciation Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
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State two causes of depreciation.
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On 1 April 2018 Rafiq purchased a motor vehicle at a cost of $48 000
On 1 December 2020 Rafiq sold the motor vehicle to Bilal for $28 000. One half of the sale proceeds were received by bank transfer on that date and the balance was to be paid on 30 June 2021.
Depreciation is charged at 20% per annum using the reducing balance method. A full year’s depreciation is charged in the year of purchase and none in the year of disposal.
Rafiq prepares financial statements to 31 January.
Calculate the carrying value of the motor vehicle at 1 December 2020.
Prepare the motor vehicle disposal account.
(6)
Motor Vehicle Disposal Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
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On 31 December 2019, Lewin sold a motor vehicle, cost $20 000, with a carrying value of $16 000. The proceeds of the sale, $16 400, were received by cheque.
Prepare the disposal account for the year ended 31 December 2019.
Disposal Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
State one cause of depreciation of a non-current asset.
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Which one of the following shows the effects of omitting the depreciation charged?
Non-current assets | Profit for the year | |
|---|---|---|
A | Overstated | Overstated |
B | Overstated | Understated |
C | Understated | Overstated |
D | Understated | Understated |
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Nyat provided the following information at 1 January 2019
Account | $ |
|---|---|
Motor vehicles at cost | 48 000 |
Motor vehicles provision for depreciation | 16 000 |
On 30 September 2019 Nyat sold a motor vehicle for $13 250 and received a cheque in full settlement. This motor vehicle had been purchased on 1 July 2018 for $16 400
Nyat’s policy is to depreciate motor vehicles at 25% per annum using the reducing balance method. A full year’s depreciation is charged in the year of purchase but none in the year of sale.
Prepare the provision for depreciation – motor vehicles account for the year ended 31 December 2019 showing the transfer to the income statement. Balance the account at this date and bring the balance down at 1 January 2020.
Provision for Depreciation – Motor Vehicles Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
Prepare the disposal account showing the transfer to the income statement.
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
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State two factors that cause non-current assets to depreciate.
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State three factors that may cause a non-current asset to depreciate.
On 1 April 2017 Rosa purchased two motor vehicles costing $50 000 each.
On 1 January 2019 she sold one of the motor vehicles for $35 500. The sale proceeds were received by cheque.
Depreciation is charged at 20% per annum using the reducing balance method.
A full year’s depreciation is charged in the year of purchase and none in the year of disposal.
Prepare the provision for depreciation – motor vehicles account for the year ended 31 March 2019. Balance the account on that date and bring the balance down on 1 April 2019.
Provision for Depreciation – Motor Vehicles Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
Prepare the disposal account.
Disposal Account
Date | Details | $ | Date | Details | $ |
|---|---|---|---|---|---|
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