Module 3 Accounting for Fixed Assets (PPE) Flashcards
Identify which ONE of the following statements relating to the depreciation expense is CORRECT:
A) A period not exceeding five years for plant, machinery, fixtures and fittings and 25 years for buildings
B) The expected useful life of the asset being depreciated
C) The replacement cost of the asset being depreciated
D) The profitability of the asset being depreciated
The correct answer is B.
The nominal ledger of CBGC at 31 December 20X5, before charging depreciation for the year, shows motor
vehicles at cost £20,000 and depreciation to date amounting to £7,200. Depreciation is at charged 20% per annum using the reducing-balance method.
Calculate, after allowing for depreciation for 20X5, the net book value of motor vehicles that will be shown in
the balance sheet:
A) £8,800
B) £10,240
C) £11,520
D) £12,800
Cost 20,000 Acc dep’n (7,200) NBV 12,800 20% thereof (2560) NBV 10,240
The correct answer is B.
Coconuts, a VAT-registered business, bought a new printing press on 1 July 20X1 for £21,446 including VAT
of £3,574. The printing press was sold on 31 May 20X6. Depreciation is charged at 10% straight line with a
full year’s depreciation expense in the year of purchase and none in the year of sale. Coconuts’ year end is 30 June.
Calculate the net book value of the printing press at the point of sale:
A) £8,937
B) £10,500
C) £10,724
D) £12,511
Cost excluding VAT £17,872 (£21,446 - £3,574).
Acc dep’n:
Accumulated depreciation at 30 June 20X5
= 1,787 x 4 = 7,148
NBV £17,872 - £7,148 = £10,724
The correct answer is C.
A company purchased a lorry at a total cost of £18,342 which included VAT of £3,057.
Calculate the amount posted to the motor vehicle cost account:
A) £15,285
B) £18,342
C) £20,036
D) £21,399
Gross = 18,434
V A T = 3,057
Net 15,285
The correct answer is A.
The net book value of furniture and fittings at 1 October 20X5 was £20,976, being cost of £35,672 less
accumulated depreciation of £14,696. During the year to 30 September 20X6, fittings costing £2,972 were
purchased. Depreciation is charged on the reducing-balance basis at 15% per annum.
Calculate, to the nearest pound, the depreciation expense for the year ended 30 September 20X6:
A) £2,650
B) £3,118
C) £3,592
D) £5,810
The correct answer is C.
Rudolph buys a mechanised sleigh in 20X4 for £30,500. The estimated useful life is 15 years and the
estimated residual value is £500. Straight-line depreciation is to be used. After six years, the estimated remaining useful life is four years, due to excessive wear and tear. There is no change to residual value.
Calculate the new depreciation expense for the seventh year:
A) £2,875
B) £3,600
C) £4,500
D) £4,625
Recalculate using new useful life.
The correct answer is C.
Starfish & Co bought a sailing boat for £48,000. The boat is to be depreciated at 2% per annum straight line.
After 15 years the remaining useful life is assessed as being 50 years.
Calculate the revised annual depreciation expense following the new assessment of the useful life:
A) £288
B) £384
C) £576
D) £672
£48,000 x 2% = £960
£960 x 15 years = £14,400
(£48,000 - £14,400) over 50 years = £672
The correct answer is D.
On 1 January 20X5, a business sells a van which it bought on 1 January 20X2 for £3,000, and has been
depreciating at 25% per annum on a straight-line basis. It trades this van in for a new van costing £5,000 and
pays the supplier £4,600 by cheque. The year end of the business is 31 December.
Calculate the accounting profit or loss on the sale of the old van:
A) £750 loss
B) £350 loss
C) £350 profit
D) £750 profit
The correct answer is B. See book for details.
The net book value of assets, in a VAT-registered business, as at 1 July 20X2 was £19,720, consisting of cost of £25,670 and accumulated depreciation £5,950. During the year to 30 June 20X3, machinery costing £5,670 net of VAT was purchased. The depreciation policy is to charge depreciation at 25% on all machinery held at the year end on the reducing-balance basis.
Calculate the depreciation expense for the year ended 30 June 20X3:
A) £6,348
B) £6,417
C) £7,835
D) £9,322
The correct answer is A.
Miller buys a car for £10,000. The business is advised to trade it in for a new car in three years’ time when it
will probably fetch £4,000. Miller decides to depreciate on this basis.
Calculate the annual depreciation charge based on a straight-line basis:
A) £1,000 per annum
B) £1,500 per annum
C) £2,000 per annum
D) £3,000 per annum
The correct answer is C.
Plush, a carpet shop, traded its old delivery van in for a new one on 31 December 20X9. The old van was
purchased during the year ended 31 December 20X1 for £17,000, and has been depreciated using 15%
straight line. The new van’s purchase price is £21,000 but Plush only needed to pay £20,300 following the
trade in.
Calculate the profit or loss on disposal of the old van:
A) £150 loss
B) £700 profit
C) £1,550 profit
D) £4,100 profit
The correct answer is B.
A business depreciates equipment at 25% per annum on the reducing-balance basis with a full year’s expense
in the year of purchase and none in the year of disposal. The accountant has calculated depreciation for the year to 31 December 20X6 and posted the entries to the nominal ledger before the trial balance was extracted. However, he has since discovered that, included in the fixed assets figure, was a machine bought for £2,500
in October 20X2 which was sold for scrap in August 20X6.
Calculate the effect to the nearest pound, of correcting the depreciation expense for the year to
31 December 20X6:
A) Increase the expense by £198
B) Decrease the expense by £198
C) Increase the expense by £625
D) Decrease the expense by £625
Incorrectly included in expense, therefore decrease expense for year by £198. The correct answer is B.
A machine costing £55,000 has an expected useful life of 10 years and an estimated residual value of £3,000.
Depreciation is calculated on the reducing-balance method at the rate of 25%.
In year five the machine was disposed of for £15,000 (no depreciation was charged in the year of disposal).
Calculate the profit or loss arising on the disposal:
A) £13,052 loss
B) £14,000 loss
C) £2,403 loss
D) £1,948 profit
The correct answer is C.
Mansell has sold his car for £73,000. The net book value of the car at the date of sale was £30,000.
The original cost of the car was £60,000 and it was depreciated at 25% per annum straight line.
Identify the journal entry to incorporate the sale of the car:
A) Dr P&L – loss on sale 73,000
Cr Motor vehicles – cost 63,479
Cr VAT 9,521
B) Dr Bank 73,000
Cr Motor vehicles – cost 73,000
C) Dr Bank 73,000
Cr P&L – profit on sale 13,000
Cr Motor vehicles – cost 52,174
Cr VAT 7,826
D) Dr Bank 73,000
Dr Motor vehicles – acc deepen 30,000
Cr Motor vehicles – cost 60,000
Cr P&L – profit on sale 43,000
The correct answer is D.
Pronto Pack sells its old packaging machine for £300 on 31 December 20X8. The machine was bought during
the year ended 31 December 20X3 for £10,000. Depreciation on plant and machinery is charged at 20%
straight line. A full year’s depreciation is charged in the year of purchase, none in the year of sale.
Calculate the profit on disposal:
A) £300
B) £1,700
C) £2,300
D) £3,700
Annual depreciation = £2,000. Depreciation 20X3-20X7 (£2,000 x 5 years), therefore, packaging machine is fully depreciated. Sales proceeds 300 NBV - Profit on sale 300
The correct answer is A.
