Question 1

Rachel bought a motor vehicle for £25,000. The vehicle has an estimated useful life of 3 years and an estimated residual value of £2,500. If depreciation is to be provided on the straight-line basis, which of the following statements is true?

Accepted Answer

D

Question 2

Ross Ltd bought a machine for £120,000. It has an expected useful life of 5 years and a residual value of £10,000. Using straight-line depreciation, how much will the depreciation charge be for each year?

Accepted Answer

The straight-line depreciation method calculates annual depreciation by subtracting the residual value from the cost and dividing by the useful life. (£120,000 - £10,000) / 5 = £22,000 per year.

Question 3

The annual straight-line depreciation charge on an asset is calculated as follows:

Accepted Answer

The straight-line depreciation method calculates the annual depreciation charge by subtracting the residual value from the original cost and then dividing by the estimated useful life of the asset.

Question 4

Monica's trade receivables at 31 December were £35,000, including an amount of £3,000 owed by Chandler Ltd. However, she was notified that Chandler Ltd is being liquidated and that none of the debt owing to Monica will be received. Which of the following statements is true?

Accepted Answer

Monica should write off the £3,000 owed by Chandler Ltd as a bad debt, reducing trade receivables to £32,000 and charging the £3,000 to the statement of profit or loss.

Question 5

A non-current asset was purchased for £21,000 on 1 January 2020. If it is depreciated using the reducing-balance basis at the rate of 40% per annum, the net book value of the asset at 31 December 2021 will be:

Accepted Answer

The reducing-balance method applies depreciation on the remaining book value each year. For 2020, depreciation is £21,000 * 40% = £8,400, leaving a book value of £12,600. For 2021, depreciation is £12,600 * 40% = £5,040, leaving a book value of £7,560.

Question 6

Which one of the following is the correct statement?

Accepted Answer

A doubtful debt is an amount that a company expects might not be paid by a debtor, and it is prudent to make a provision for such debts in the accounts.

Question 7

Which of the following facts about depreciation is NOT true?

Accepted Answer

Depreciation is a non-cash expense that allocates the cost of an asset over its useful life, not the amount paid out for the asset in that year.

Question 8

Phoebe bought a laptop computer for her business that cost £2,000 and it has a net book value of £1,200 after one year. If she sells the laptop for £700 at that time, the profit / (loss) on disposal would be:

Accepted Answer

The net book value is £1,200 and she sold it for £700, so she made a loss of £500.

Question 9

A business is said to be a 'going concern' if:

Accepted Answer

A business is considered a 'going concern' if it is expected to continue its operations and not liquidate or be forced to cease trading in the foreseeable future.

Question 10

Joey's trade receivables at 31 December 2023 were £24,000 and this amount includes £1,200 owed by Zoom Ltd. Joey has been notified that Zoom Ltd is being liquidated and the amount of £1,200 owing to the business will not be paid. Which of the following statements is true?

Accepted Answer

The trade receivables should be reduced by the amount that will not be collected (£1,200), resulting in £22,800. The £1,200 should be recognized as a bad debt expense in the statement of profit or loss.

Quiz 4: Accounting for Depreciation and Bad Debts