CHAPTER 10

A company purchases a machine with a list price of £130,000. The company pays £100,000 in cash and trades in an old machine, which has a carrying amount of £32,000. It is the company's policy to depreciate machines at the rate of 10% per annum on cost.

What is the carrying amount of the new machine after one year?

• £88,200

• £117,000

• £90,000

• £61,200

A company purchases a machine for £20,000 on the first day of the reporting period. After incurring transportation costs of £1,000 and spending £2,000 on installation, the machine runs satisfactorily for several months before it breaks down and costs £800 to repair. Depreciation is charged at 20% per annum.

At what carrying amount will the machine be shown in the company's statement of financial position at the end of the reporting period?

• £19,040

• £18,400

• £16,800

• £16,000

A company buys a machine on 31 August 20X3 for £36,000. It has an expected life of seven years and an estimated residual value of £2,400. On 30 June 20X7 the machine is disposed of for £12,000. The company's year end is 31 December. Its accounting policy is to charge depreciation using the straight line method.

Calculate the loss on disposal of the machine which will appear in the statement of profit or loss for the year ended 31 December 20X7.

• £4,286

• £4,800

• £5,600

• £9,600

• A

• B

• C

• D

Vernon, a sole trader, purchased some new equipment on 1 April 20X7 for £8,000. The scrap value of the new equipment in five years' time is estimated to be £800. Vernon charges depreciation monthly on the straight line basis.

What should the depreciation charge for the equipment be in the year to 30 September 20X7?

• £720

• £1,440

• £1,080

• £1,600

An asset register showed a total carrying amount of £81,770. A non-current asset costing £12,000 had been sold for £3,000, making a loss on disposal of £1,600. No entries had been made in the asset register for this disposal.

The correct balance on the asset register is:

• £86,370

• £69,770

• £78,770

• £77,170

Windsor plc calculated its draft profit for the year to 31 December 20X2 as £184,800. It later discovered that a repairs and maintenance expense of £12,000 on 30 June 20X2 relating to buildings repairs was incorrectly capitalised. Buildings are depreciated monthly over 10 years on the straight-line basis.

What is Windsor plc's profit for the year after adjusting for this error?

• £173,400

• £196,200

• £174,000

• £194,800

• A

• B

• C

• D

A business' statement of profit or loss for the year ended 31 December 20X4 showed a profit for the year of £101,400. It was later found that £20,000 paid for the purchase of a motor van on 1 January 20X4 had been debited to motor expenses account. It is the company's policy to depreciate motor vans at 25% per year.

What is the profit for the year after adjusting for this error?

• £86,400

• £121,400

• £116,400

• £96,400

A company purchases a machine for £100,000 on 1 January 20X5. The machine has an estimated useful life of 10 years. On 1 January 20X8 the company enhances the machine by adding additional software controls costing £40,000. These are expected to have the same remaining useful life as the machine.

The additional annual depreciation on the machine will be:

• £4,000

• £4,444

• £5,000

• £5,714