IGCSE Accounting [Depreciation]

Why does a business provide for depreciation on fixed assets?

• to retain cash in the business for replacement of the assets

• to charge the cost of fixed assets against profits in the year of purchase

• to ensure that the realisable value of assets is shown in the Balance Sheet

• to ensure that the matching principle is applied when preparing final accounts

For which category of fixed assets is the revaluation method of depreciation most appropriate?

• loose tools

• motor vehicles

• office equipment

• plant and machinery

X buys a machine on 1 January 2000 for $10 000 and depreciates it by 20 % per annum using the

straight-line method.

X sells the machine on 1 January 2003 for $3000.

What is the profit or loss on disposal?

• $1000 loss

• $3000 loss

• $1000 profit

• $3000 profit

A fixed asset costing $5000 is depreciated at the rate of 20 % per annum using the

diminishing balance method.

What is the total amount of depreciation for the first two years?

• $1000

• $1200

• $1800

• $2000

What is the main purpose of charging depreciation on fixed assets?

• to provide funds for the replacement of assets

• to record the assets at their market value

• to reduce the cost of repairing assets

• to spread the cost of assets over their useful lives

A machine was purchased on 1 January 2013 for $12 000. It has a working life of 8 years when it

will be sold for $2000. Depreciation is calculated using the straight line method.

What was the written down value at 31 December 2013?

• $10 000

• $10 500

• $10 750

• $12 000

Machinery costing $25 000 is depreciated at 20 % per annum using the diminishing (reducing)

balance method.

It is sold at the start of year 3 for $12 000.

What is the profit or loss on disposal?

• loss $3000

• loss $4000

• profit $3000

• profit $4000

X’s financial year ends on 31 December.

On 31 December 2003 the following accounts appeared in her ledger.

Equipment at cost - Debit $ 18 000

Provision for depreciation of equipment - Credit $ 7 000

On 1 January 2004 she purchased equipment for $12 000. Equipment is depreciated at 25 % per

annum using the straight line method.

What will be the total provision for depreciation of equipment on 31 December 2004?

• $3000

• $7500

• $14500

• $18500

How is the balance on the provision for depreciation of motors account shown in the final

accounts?

• It is added to the current liabilities in the Balance Sheet.

• It is deducted from the fixed assets in the Balance Sheet.

• It is credited in the Profit and Loss Account.

• It is debited in the Profit and Loss Account.

A business owns a machine.

cost of machine $10 000

estimated life 4 years

residual value $3000

Depreciation is charged at 20 % each year, using the diminishing (reducing) balance method.

What is the depreciation charge in year 2 of the life of the asset?

• $1120

• $1600

• $1750

• $2500