Posttest Topic 4-6

Which of the following statements is correct?

• A debit entry increases an asset; A debit entry decreases capital

• A debit entry increases an asset; A credit entry decreases capital

• A credit entry increases an asset; A debit entry decreases capital

• A credit entry increases an asset; A credit entry decreases capital

The draft financial statements of Albert plc for the year ended 31 March 20X7 show a profit of £236,662. The company's policy is to depreciate all non-current assets at 25% on cost. You discover the following errors.

(1)   A machine which cost £6,480 on 1 April 20X6 has been treated as repairs, whereas it should have been capitalised.

(2)   Cars bought on 1 April 20X6 for £56,160 have not been depreciated. 

What is the company's adjusted profit for the year ended 31 March 20X7?

• £214,522

• £227,482

• £229,102

• £245,842

Which two of the following would result in a debit entry to the irrecoverable debts expense account?

• Irrecoverable debt written off

• Irrecoverable debt recovered

• Increase in allowance for receivables

• Decrease in allowance for receivables

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

The additional annual depreciation on the heat pump will be:

• £4,000

• £4,444

• £5,000

• £5,714

Hollis bought a van for his business on 30 June 20X1 for £13,750, including £150 for a car tax licence. Hollis depreciates motor vehicles at 20% per annum on cost, charging depreciation on a monthly basis. His year end is 31 December.

On 1 January 20X4, Hollis traded in the van for a new one which runs on bio-fuel, receiving a part-exchange allowance of £7,250.

What was the profit on disposal of the van?

• £375

• £450

• £1,750

• £1,810