7a ‘What isthe purpose of charging depreciation in financial statements? ‘A Toallocate the cost of a non-current asset over the accounting periods expected to benefit from. its use B —To-ensure that funds are available for the eventual replacement ofthe asset To reduce the cost of the asset in the statement of financial postion to its estimated market value D —To-account forthe wearing-out'of the asset over is ite (2 marks) 7.2. Which ofthe statements below correctly states the purpose ofthe assat register? ‘A Aninternal control to ensure details ofall assets are readily available in the event of loss or theft B_To-ensure the organisation is aware of the age of plant and machinery © Aminternal control to ensure information relating to non-current assets in the nominal ledger and. the financial statements is correct D_—Toenable the organisation to comply with IAS 16 Property, plant and equipment (2 marks) 7.3 Anasset register showed a carrying amount of $67,460. A non-current asset costing $19,000 had been sold for $4,000, making a loss on disposal of $1,250. No entries had been made in the asset register for this disposal ‘What isthe correct balance on the asset register, once the disposal has been accounted for? s (2 marks) 7.4. An organisation's asset register shows a carrying amount of $145,600. The non-curtent asset account in the nominal ledger shows a carrying amount of $135,600. The difference could be due to a disposed asset not having been deducted trom the asset register ‘Which one of the following could represent that asset? ‘A Asset with disposal proceeds of $15,000 and a profit on disposal of $5,000 B Asset with disposal proceeds of $15,000 and a carrying amount of $5,000, © Asset with disposal proceeds of $15,000 and a lass on disposal of $5,000 D Asset with disposal proceeds of $5,000 and a carrying amount of $5,000 (2 marks) 7.5 Which one of the following would occur i the purchase of computer stationary was debited tothe: ‘computer equipment at cost account? A An overstatement of profit and an overstatement of non-current assets BB _Anunderstatemant of profit and an overstatement of non-current assets © An overstatement of profit and an understatement of non-current assets D_—_Anunderstatement of profit and an understatement of non-current assets (2 marks) 7.6 Whici one of the following statements correctly defines non-current assets? ‘A Assets that are held for use in the production of goods or services and are expected to be used during more than one accounting period B_ Assets wich are intended to be used by the business on a continuing basis, including both tangible and intangible assets Urat do not meet the IASB definition of a current asset © _Non-monetary assets without physical substance that are controlled by the entity and from which future benefits are expected to flow D_ Assets in the form of materials or supplies to be consumed in the production process (2 marks)7.7 Accompany bought a property four years ago on 1 January for $ 170,000. Since then property prices have risen substantially and the property has been tevalued at $210,000. ‘The property was estimated as having 2 useful life of 20 years when it was purchased. What is the balance on the revaluation surplus reported inthe statement of financial position? A $210,000 B $136,000 © $74,000 D $34,000 (2 marks) 7.8 A .business purchased a motor car on 1 July 20X3 for $20,000. Its to be depreciated at 20 per cent per year on the straight line basis, assuming a residual value at the end of five years of $4,000, with a proportionate depreciation charge in the years of purchase and disposal, The $20,000 cost was correctly entered in the cash book but posted to the debit ofthe motor vehicles repairs account. How will the business profit for the year ended 31 December 20X3 be affected by the error? A Understated by $18,400 B Understated by $16,800 © Overstated by $18,400 D Overstated by $16,800 (2 marks) 7.9 company’s policy is to charge depreciation on plant and machinery at 20% per year on cost, with proportional depreciation for tems purchased or sold during a year The companys plant and machinery at cost account for the year ended 30 September 20X3 Is shown below, PLANT AND MACHINERY ~ COST $ 8 20x2 20x3 LOct Balance 200,000 30 Jun Transfer disposal account 40,000 30 Sep Balance 210,000 20x3 1 Apr Cash-purchase of plant 50,000 £280,000 250,000 ‘What should be the depreciation charge for plant and machinery (excluding any profit or loss on the disposal) for the year ended 30 September 20x37 A $43,000 B $51,000 © $42,000 D $45,000 (2 marks)7.10 ‘The plant and machinery at cast account af a business for the year ended 30 June 20X4 was as follows: PLANT AND MACHINERY ~ COST 8 $s 20x3 20x3 LJul Balance 240,000 30 SepTransfer disposal account 60,000 20x4 20K4 1 Jan Cash ~ purchase of plant 160,000 30 Jun Balance 340,000, 400,000, 400,000, “The companys policy is to charge depreciation at 20% per year on the straight line basis, wth proportionate depreciation in the years of purchase and disposal ‘What should be the depreciation charge for the year ended 30 June 20x4? $68,000, 364,000 361,000, $55,000, (2 marks) gom> ‘A manufacturing company receives an invoice on 29 February 20X2 for work done on one ofits machines. $25,500 of the cost is actually for a machine upgrade, which will improve efficiency. The ‘accounts department do not notice and charge the whole amount to maintenance costs. Machinery is depreciated at 25% per annum on a straight-line basis, with a proportional charge inthe years of ‘acquisition and disposal. By what amount will the profit for the year to 30 June 20X2 be understated? A $19,125 B $25,500 cc $23,375 D $21,280 (2 marks) 7.12. W bought @ new printing machine. The machine was purchased for $80,000. The installation costs were $5,000 and the employees received training on how to use the machine, ata cost of $2,000. Before using the machine to print customers’ orders, a test was undertaken and the paper and ink cost $1,000. ‘What should be the cost of the machine in the company’s statement of financial position? 8. (2 marks) 7.13. What are the correct ledger entries to record an acquisition of a non-current asset an credit? Debit credit A Non-current assets cost —_—Recevables B Payables NNon-current assets — cost © Non-current assets cost Payables D —Non-current assets ~cost Revaluation surplus (2 marks)7.14. Alpha selis machine B for $50,000 cash on 30 April 20X4. Machine B cost $100,000 when it was, purchased and has a carrying amount of $65,000 at the date of disposal. What are the journal entries to record the disposal of machine 8? A Dr Accumulated depreciation $35,000 Dr Loss on disposal (SPL) $15,000, Dr cash $50,000 Cr Non-current assets — cost $100,000 B Dr Accumulated depreciation $365,000 Dr Loss on disposal (SPL) $35,000 Cr Non-current assets — cost $100,000 © Dr Accurnulated depreciation $35,000 Drcash $350,000 Cr Non-current assets $65,000, Cr Profit on disposal (SPL) $20,000 D Dr Non-current assets $65,000 Dr Accumulated depreciation $35,000 Cr Cash $50,000 Cr Profit on disposal (SPL) $50,000 (2 marks) 7.15 Identity, by indicating the relevant box in the table below, whether each of the following statements is true or false, IAS 16 Property, plant and Tue False equipment requires entities to disclose the purchase date of each asset, The carrying amount of @ non- True False current asset isthe cost or valuation of that asset less accumulated depreciation, TAS 16 Property, plant and True True equipment permits entities to make a transfer from the revaluation surplus fo retained earings for excess depreciation on revalued assets, (Once decided, the useful ife oF True False ‘a non-current asset should not bbe changed (2 marks) The following information is relevant for Questions 7.16 and 7.17. Gusna Co purchased a building on 31 December 20X1 for $750,000. At the date of acquisition, the useful life ofthe building was estimated to be 25 years and depreciation is calculated using the straight-line method. At 31 December 20X6, an independent valuer valued the building at $1,000,000 and the revaluation was ‘recognised in the financial statements, Gusna's accounting polices state that excess depreciation arising on revaluation of non-current assets can be transferred from the revaluation surplus to retained earings. 7.16 What is the depreciation charge on the building forthe year ended 31 December 207? A $40,000 B $50,000 & $30,000 D $42,500 (2 marks)