Non-current Asset and Depreciation

Cataract plc purchases a machine for which the supplier’s list price is £28,000. Cataract plc pays £23,000 in cash and trades in an old machine, which has a carrying amount of £8,000. 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 machine after one year?

• £18,000
• £25,200
• £20,700
• £22,200

Demolition plc purchases a machine for £15,000 on 1 January 20X1. After incurring transportation costs of £1,300 and spending £2,500 on installing the machine it breaks down and costs £600 to repair. Depreciation is charged at 10% per annum. At what carrying amount will the machine be shown in Demolition plc’s statement of financial position at 31 December 20X1?

• £13,500
• £14,670
• £16,920
• £18,800

A company buys a machine on 31 August 20X0 for £22,000. It has a useful life of seven years and a residual value of £1,000. On 30 June 20X4 the machine is sold for £9,000 cash which has been recorded correctly in the cash at bank account, however a suspense account was opened to record the other side of the transaction. The company’s accounting policy is to charge depreciation monthly using the straight-line method, with depreciation charged in the month of purchase but not the month of disposal. What journal entry is required to correctly record the disposal of the machine and to remove the suspense account?

• Debit Suspense account £9,000, Debit Accumulated depreciation £11,500, Debit Loss on disposal £1,500, Credit Machine cost £22,000
• Debit Suspense account £9,000, Debit Accumulated depreciation £11,750, Debit Loss on disposal £1,250, Credit Machine cost £22,000
• Debit Machine cost £22,000, Credit Suspense account £9,000, Credit Accumulated depreciation £11,500, Credit Profit on disposal £1,500
• Debit Machine cost £22,000, Credit Suspense account £9,000, Credit Accumulated depreciation £11,750, Credit Profit on disposal £1,250

Derek plc purchased a van on 1 October 20X0 for a total cost of £22,000 by paying £17,500 cash and trading in an old van. The old van had cost £20,000 and the related accumulated depreciation was £14,200. The loss on disposal of the old van in Derek plc’s statement of profit or loss for the year ended 31 December 20X0 is:

• £1,300
• £2,000
• £2,500
• £5,800

Vernon plc purchased new equipment on 1 April 20X1 for £6,000. The scrap value of the new equipment in five years’ time has been assessed as £300. Vernon charges depreciation monthly on the straight-line basis. What is the journal entry to record the depreciation charge for the equipment in Vernon plc’s reporting period of 12 months to 30 September 20X1?

• Debit Depreciation expense £570, Credit Accumulated depreciation £570
• Debit Accumulated depreciation £570, Credit Depreciation expense £570
• Debit Depreciation expense £600, Credit Accumulated depreciation £600
• Debit Accumulated depreciation £600, Credit Depreciation expense £600

A car has a list price of £23,500 but the garage gives Ride plc a 10% trade discount. In settlement the garage accepts payment of £18,000, together with an old company car. The amount to be capitalised by Ride plc for the new car is:

• £16,200
• £18,000
• £21,150
• £23,500

A company purchased a car for £18,000 on 1 January 20X0. The car was traded in on 1 January 20X2. The new car has a list price of £30,000 and the garage offered a part-exchange allowance of £5,000. The company provides depreciation on cars using the reducing balance method at a rate of 25% per annum. What loss on disposal will be recognised in the statement of profit or loss for the year ended 31 December 20X2?

• £5,125
• £8,500
• £10,125
• £11,175

What is the reasoning behind charging depreciation in historical cost accounting?

• To ensure funds are available for the eventual replacement of the asset
• To comply with the consistency concept
• To ensure the asset is included in the statement of financial position at the lower of cost and net realisable value
• To match the cost of the non-current asset with the revenue that the asset generates

Which of the following is excluded from the cost of a tangible non-current asset?

• Site preparation costs
• Legal fees
• Costs of a design error
• Installation costs

Which of the following statements about intangible assets in public company financial statements are correct? (1) Internally generated goodwill should not be capitalised. (2) Purchased goodwill should normally be amortised through the statement of profit or loss. (3) Development expenditure must be capitalised if certain conditions are met.

• 1 and 3 only
• 1 and 2 only
• 2 and 3 only
• 1, 2 and 3