ICAEW CFAB - Accounting - Chapter 10 Quiz

Materials purchased and used by Pola & Co for repairs to office buildings have been included in the draft financial statements as purchases.

Requirement

The necessary amendment will:

• A Increase gross profit with no effect on net profit

• B The decrease and increase to net profit cancel out

• C Increase gross profit and reduce net profit

• D Have no effect on either gross profit or net profit

• E Reduce gross profit and increase net profit

Marcellus acquired new premises at a cost of £250,000 on 1 January 20X1. Marcellus paid the following further costs during the year ended 31 December 20X1.

Costs of initial adaptation: £13,900

Legal costs relating to purchase: £1,200

Monthly cleaning contract: £9,600

Office furniture: £6,500

Requirement

What amount should appear as the cost of premises in the company’s statement of financial position at 31 December 20X1?

• A £250,000

• B £263,900

• £265,100

• D £271,600

Why is depreciation charged on non-current assets?

• A To ensure that sufficient funds are available to replace the assets

• B To show the assets at replacement cost on the statement of financial position

• C To spread the cost of the assets over their useful lives

• D To show the fall in market value of the assets in the statement of profit or loss

ABC, whose reporting period is the 12 months ended 31 December, has charged depreciation monthly at the rate of 10% per annum on cost on an item of plant bought on 1 September 20X0 costing £15,000. The depreciation method was changed from straight line to 10% reducing balance at the end of 20X3.

Requirement

The depreciation charge on this asset for 20X5 was:

• A £1,500

• B £945

• C £900

• D £889

A business with a reporting period of the 12 months ended 30 June buys a non-current asset on 1 July 20X3 for £200,000. Depreciation is charged at 15% per annum on the reducing balance basis. On 30 June 20X5 the asset was sold for £54,800.

Requirement

What was the loss on sale of the asset?

• A £89,700

• B £85,200

• C £68,025

• D £55,200

In the year ended 31 December 20X7 Bobby traded in for £6,860 a vehicle costing £12,000 on 1 November 20X5 against the cost (£9,600) of a replacement vehicle. The balance due for the new vehicle has been paid in cash and debited to the cost of vehicles account and credited to cash at bank.

Requirement

What net adjustment is required to the company’s cost of vehicles account as a result of this transaction?

• A £9,600 DR

• B £12,000 CR

• C £6,800 DR

• D £5,140 CR

A business acquired machinery on 1 October 20X5 for £117,000 and has depreciated it on a reducing balance basis at 20% per annum. On 30 September 20X7, an impairment review was carried out which showed the machinery had a fair value less disposal costs of £70,000 and a value in use of £72,500.

Requirement

At what amount should the machinery be presented in the statement of financial position as at 30 September 20X7?

• A £74,880

• B £72,500

• C £70,000

• D £70,200

A business buys a machine on 1 January 20X1 for £10,000 and depreciates it at 10% per annum straight line. At the end of 20X2 the machine’s remaining useful life is reassessed at six years remaining and it is now believed that the machine has a residual value of £500.

Requirement

What is the depreciation charge for the third year of the machine’s use?

• A £950

• B £1,250

• C £1,267

• D £1,350

The following information relates to the disposal of two machines by Paddock.

Machine 1

Cost: £120,000

Disposal proceeds: £90,000

Profit/(loss) on disposal: £30,000

Machine 2

Cost: £140,000

Disposal proceeds: £80,000

Profit/(loss) on disposal: (£40,000)

Requirement

What was the total carrying amount of both machines sold at the date of disposal?

• A £100,000

• B £160,000

• C £180,000

• D £240,000

On 1 June 20X1 Quandry bought a non-current asset for £50,000 which had an estimated useful life of 10 years and a residual value of £2,000. Quandry depreciates its non-current assets on a straight line basis. Quandry’s reporting period is the 12 months ended 31 December.

On 1 January 20X4 the accountant determined that the asset’s remaining useful life should be revised to eight years from that date with no residual value. An impairment review at that date shows that the recoverable amount of the asset is considered to be only £25,000.

Requirement

What is the total depreciation and impairment loss charge for this asset in 20X4?

• A £3,125

• B £12,400

• C £15,725

• D £18,000