Accounting Chapter 12 - Past Year MCQ

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

Aggie is a trader. She uses the following methods of depreciation for different types of non-current asset. straight-line at 20% per annum reducing balance at 25% per annum revaluation On 1 January year 1, Aggie purchased small items of equipment costing a total of $2400 and fittings costing $8000. On 31 December year 2, Aggie estimated that the equipment was worth 70% of its original cost. The statement of financial position showed the net book value of equipment as $1680 and fittings as $4800. Which depreciation methods has Aggie used?

• Equipment - reducing balance | Fittings - straight-line
• Equipment - revaluation | Fittings - reducing balance
• Equipment - revaluation | Fittings - straight-line
• Equipment - straight-line | Fittings - revaluation

Abeo prepares financial statements to 31 December each year. Abeo bought machinery for $40 000 on 1 January year 1. He charges depreciation on machinery at 20% per annum using the reducing balance method. Depreciation is charged in the year of purchase but not in the year of disposal. On 1 January year 3, the machinery was sold for $22 000. Which journal entry records the profit or loss on disposal of the machine?

• DR disposal $2000 | CR Income Statement $2000
• DR disposal $3600 | CR Income Statement $3600
• DR Income Statement $2000 | CR disposal $2000
• DR Income Statement $3600 | CR disposal $3600

Two companies each purchased a motor vehicle for $10 000 at the beginning of year 1. Company G used the straight-line method of depreciation at a rate of 15% per annum, while Company H used the reducing balance method at a rate of 20% per annum. What was the difference in the depreciation charge between the two companies for year 2?

• $100 greater for G
• $100 greater for H
• $500 greater for G
• $500 greater for H

Nia sold equipment with a net book value of $200. The proceeds of the sale, $250, were credited to the sales account and debited in the cash book. What was the effect of this error on Nia’s gross profit and profit for the year?

• gross profit - overstated $50 | profit - overstated $50
• gross profit - overstated $200 | profit - understated $250
• gross profit - overstated $250 | profit - understated $200
• gross profit - understated $250 | profit - understated $200

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

A machine with an original cost of $10 000 had been depreciated for two years at the rate of 10% per annum using the straight-line basis. It was then sold for cash with the loss on disposal amounting to $700. A replacement machine was bought on the same day for $12 400 cash. What was the net decrease in the cash balance?

• $3700
• $5100
• $11700
• $13100

Motor vehicle repairs, $2000, were debited to the motor vehicles account. Motor vehicles are depreciated at 20% per annum on the balance of the account at the year end. What was the effect of the error?

• profit - overstated $1600 | motor vehicles - overstated $1600
• profit - overstated $2000 | motor vehicles - overstated $2000
• profit - understated $1600 | motor vehicles - understated $1600
• profit - understated $2000 | motor vehicles - understated $2000