Accounting IGCSE Revision - Depreciation

An office machine cost $8500 and is estimated to have a useful life of four years. Its scrap value at the end of this time is estimated at $1000.

What is the annual charge for depreciation using the straight-line method?

• $1000

• $1875

• $2125

• $2375

A sole trader depreciates his motor vehicles at 25 % per annum on a reducing balance basis.

The vehicles cost $16 000 at 1 January Year 1.

What is the depreciation for Year 2?

• $3000

• $4000

• $7000

• $8000

On 1 February 2017 Katya’s fixtures and fittings had a net book value of $12 950.

She purchased fixtures, $2250, during the year.

Depreciation for the year ended 31 January 2018 was $4900.

What was the net book value of fixtures and fittings on 31 January 2018?

• $5800

• $7150

• $10 300

• $15 600

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 Non Current Assetss 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 (after three years) 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 reducing balance method.

What is the total amount of depreciation (provision on the depreciation) for the first two years?

• $1000

• $1200

• $1800

• $2000

Answer explanation

provision on the depreciation is sometimes called accumulated depreciation

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

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

Answer explanation

at the start of year 3 means that the asset have been used for two years

How is the balance on the provision for depreciation of NCA shown in the final accounts?

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

• It is deducted from the NCA in the SoFP / Balance Sheet.

• It is credited in the Profit and Loss Account.

• It is debited in the Profit and Loss Account.