Ch12-16

Question 1

What are balance day adjustments?

Answer 1

a change made to a revenue
or expense account on
balance day so that revenue
accounts show revenues
earned and expense accounts
show expenses incurred in a
particular Period

Question 2

Define prepaid expenses?

Answer 2

a current asset that has been
paid in advance in the current
Period but is yet to be incurred

Question 2

Define accrued expense?

Answer 2

a current liability that arises
when an expense has been
incurred in the current Period
but has not yet been paid

Question 3

Define depreciation?

Answer 3

the allocation of the cost of
a non-current asset over its
Useful life

Question 4

Define ‘depreciation expense’?

Answer 4

that part of the cost of a noncurrent asset that has been
incurred in the current Period

Question 5

Define historical cost?

Answer 5

the original purchase price of
the non-current asset

Question 6

Define residual value?

Answer 6

the estimated value of the
non-current asset at the end of
its useful life

Question 7

Define ‘useful life’

Answer 7

the estimated period of time
for which the non-current asset
will be used by the current
entity to earn revenue (usually
measured in years)

Question 8

Define ‘depreciable value”?

Answer 8

the total value of the asset that
will be consumed by the current
entity, and so must be allocated
as depreciation expense over
its useful life

Question 9

Define ‘accumulated depreciation’?

Answer 9

the total value of a non-current
asset that has been incurred
over its life thus far

Question 10

Define ‘carrying value’?

Answer 10

the value of a non-current
asset that is yet to be incurred, plus
any Residual value

Question 11

‘Cost of a non current asset’

Answer 11

all costs incurred in order to
bring the asset into a location
and condition ready for use,
which will provide a benefit for
the life of the asset

Question 12

‘Loss on disposal of NCA’

Answer 12

an expense incurred when the
proceeds from the disposal
of a non-current asset is less
than its Carrying value when
disposed

Question 13

‘Profit on disposal of NCA

Answer 13

a revenue earned when the
proceeds from the disposal of
a non-current asset are greater
than its carrying value when
disposed

Question 14

Under-depreciation

Answer 14

when insufficient depreciation
expense has been allocated
over the life of a non-current
asset due to overstating
its Residual value and/or
Useful life, resulting in an
overstatement of the asset’s
Carrying value

Question 15

Over-depreciation

Answer 15

when excess depreciation
expense has been allocated
over the life of a non-current
asset due to understating
its residual value and/or
useful life, resulting in an
understatement of the asset’s
carrying value

Question 16

Trade in

Answer 16

proceeds from the disposal of
a non-current asset in the form
of a reduction in the amount
payable for the purchase of a
new non-current asset

Question 17

Bad debt

Answer 17

a debt that must be ‘written
off’ as irrecoverable or
uncollectable because it
has been confirmed that the
Account Receivable is unable
to pay due to liquidation or
bankruptcy

Question 18

‘Doubtful debt’

Answer 18

a debt that is unlikely to be
collected in the future but has
not yet been ‘written off’ as it
has not been confirmed that the
Account Receivable is unable
to pay

Question 19

‘Allowance for doubtful debts’

Answer 19

a negative current asset account that
records the balance of doubtful
debts (that are unlikely to be
collected in the future but have
not yet been written off)

Question 20

Unearned revenue

Answer 20

a current liability that arises
when cash is received in
advance for revenue that is yet
to be earned

Question 21

Accrued Revenue

Answer 21

a current asset which arises
when revenue has been earned
but cash is yet to be received