7707 June Depreciation

The following payments were made when a new machine was purchased. How much was the capital expenditure?

• $32 000

• $33 300

• $35 100

• $37 100

A non-current asset was depreciated at the end of the first year of ownership using the

straight-line method based on the following information.

cost $20 000

working life 4 years

residual value $4000

It was then found that the reducing balance method at 30% per annum should have been used.

What was the effect on the profit for the year of correcting this error?

• decrease by $2000

• increase by $2000

• decrease by $6000

• increase by $6000

Elzevir purchased a motor vehicle costing $8000 on 1 January 2018. It is depreciated at 40% on

the reducing balance basis.

Which journal entry records the depreciation for the year ended 31 December 2019?

• A

• B

• C

• D

Brad purchased a machine for $1000 on 1 January 2019. The machine was expected to last for

four years and have no residual value. On 31 December 2019 the same machine cost $1200 to purchase.

At which value should the machine be included in the statement of financial position on 31 December 2019?

• current cost with no depreciation

• current cost with one year’s depreciation

• original purchase price with no depreciation

• original purchase price with one year’s depreciation

Why does a business provide for depreciation on non-current assets?

• to charge the cost of non-current assets against profit in the year of purchase

• to ensure that non-current assets appear at book value in the statement of financial position

• to ensure that the matching principle is applied when preparing financial statements

• to retain cash in the business for replacement of non-current assets

Machinery which had cost $6290 was sold for $3100. The disposal account showed a profit on disposal of $584.

How much was the depreciation up to the date of disposal and on which side of the disposal account was it recorded?

• $2606 on the credit side

• $2606 on the debit side

• $3774 on the credit side

• $3774 on the debit side

On 1 January, Zac entered the cost of repairing equipment, $420, in the equipment account.

On 31 December, depreciation of 20% per annum, using the straight-line method, was charged on the balance of the equipment account. What was the overall effect on the book value of the equipment on 31 December?

• $84 understated

• $336 overstated

• $420 overstated

• $504 understated

Atif depreciates his motor vehicles at a rate of 20% per annum using the reducing balance method.

On 1 May 2021, Atif owned motor vehicles which cost $35 000.

At that date, the motor vehicles had been depreciated by $12 600.

What was the balance on Atif’s provision for depreciation account on 1 May 2022?

• $17 080

• $17 920

• $19 600

• $22 400

The financial year of Yeung ends on 31 March. On 1 April 2021, he purchased a machine for $4000.

He estimated that it would have a useful working life of 3 years and a residual value of $100.

Yeung uses the straight-line method of depreciation.

The machine was sold on 1 April 2022 for $1500.

What was the loss on disposal?

• $1100

• $1200

• $2400

• $2500

Which statement about the reducing balance method of depreciation is not correct?

• A lower amount of depreciation is charged in the early years of the asset’s life than in the

  later years.

• Each year a given percentage is deducted from the cost of the asset less the depreciation to

  date.

• It is used for assets which give greater benefits in the early years of their life.

• The net book value of the non-current asset will never reach a nil value.