Mirchawala’s Hub Of Accountancy:

FA2:Depreciation:
Question#1:
What is the purpose of charging Depreciation?
A. To allocate 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 of the non-current asset.
C. To reduce the cost of a non-current asset in the statement of financial position.
D. To reflect the falling realizable value of an asset.
Question#2:
Fred purchased a new van. The new van cost $9,000 and Fred paid a cheque for $2,500 to the dealer. In
addition the dealer accepted an old van in part exchange. The old van had been bought three years ago
for $11,600 and had been depreciated by $6,750.
What is the profit or loss on disposal of the old van?
A. $1,650 loss
B. $1,650 profit
C. $6,500 loss
D. $6,500 profit
Question#3:
Brook sold a delivery van which originally cost $24,500. The accumulated depreciation on the van was
$13,650 at the date it was sold. Sale proceeds of $7,500 were received.
What is the profit or loss on the disposal of the van?
A. A loss of $3,350
B. A loss of of $6,150
C. A loss of $17,000
D. A profit of $3,350
Question#4:
Jo sold a non-current asset which had originally cost $87,600 for $43,000. At the date of disposal, the
Accumulated depreciation on the asset was $45,800.
What was the profit or loss on disposal of the asset?
A. $1,200 profit
B. $1,200 loss
C. $2,800 profit
D. $2,800 loss
Question#5:
A noncurrent asset costing $60,000 has an estimated life of five years and a residual value of $7,000.The
annual depreciation charge using straight line method would be:________
Question#6:
Gary bought a new machine. The invoice included cost for:
1) Installation charges
2) Routine maintenance for the first year of operation
3) Testing the machine prior to operation
Which of the cost are capital expenditure?
A. (1),(2) and (3)

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B. (1) and (2) only

C. (1) and (3) only
D. (2) and (3) only
Question#7:
Zeba is retiring as an ice-cream vendor. She sold her ice-cream van for $1,650. The van originally cost
$15,800. At the date of sale, accumulated depreciation on the van was $12,640.
What was the profit or loss on disposal of the ice-cream van?
A. A profit of $1,510
B. A loss of $1,510
C. A profit of $3,160
D. A loss of $3,160
Question#8:
On 1 July 20X4 Tom bought a machine for $15,500. He depreciates machinery at a rate of 20% per
annum on the reducing balance basis. A full year’s depreciation is charged in the year an asset is
purchased. His year end is 31 October.
What was the depreciation charge on the on the machine for the year to 31 October 20X6?
A. $3,100
B. $2,480
C. $2,232
D. $1,984
Question#9:
Patrick bought a new cappuccino machine for his café. The purchase price of the machine was $2,500
and Patrick chose to depreciate the machine over five years. He charged a full year’s worth of
depreciation in the year of acquisition and none in the year of disposal. After 2 1/2 years, Patrick sold the
machine for $1,600
What was the profit or loss on disposal of machine?
A. Profit of $100
B. Loss of $100
C. Profit of $600
D. Loss of $600
Question#10:
A non- current asset was disposed of for $2,200 during the last accounting year. It had been purchased
exactly three years earlier for $5,000 and had been depreciated on the reducing balance basis at 20%
per annum.
What was the profit or loss on disposal?
A. $360 profit
B. $360 loss
C. $200 profit
D. $200 loss

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Question#11:
A business’s non-current assets had a carrying value of $125,000. An asset which had cost $12,000 was
sold for $9,000, at a profit of $2,000.
What is the revised carrying value of non-current assets?
A. $113,000
B. $118,000
C. $125,000
D. $127,000
Question#12:
Gary purchased a vehicle on 1 January 20X6. The vehicle cost $20,000 and was depreciated on a
straight-line basis over four years with no residual value. On 1 January 20X9 Gary part-exchanged the
vehicle for a new one costing $25,000. Gary paid cash of $18,000 towards the purchase of the vehicle.
What is the profit on disposal of the old vehicle to be included within the financial statements for the
year ended 31 December 20X9 $______?
Question#13:
Harry sold a delivery van which originally cost $24,000. The accumulated depreciation on the van was
$13,650 at the date it was sold. Sale proceeds of $8,500 were received.
What is the profit or loss on the disposal of the van____?
Question#14:
A noncurrent asset costing $50,000 has an estimated life of five years and a residual value of $8,000.The
annual depreciation charge using straight line method would be:________
Question#15:
Jerry bought a new machine. Following costs are incurred:
1) Installation charges
2) Routine maintenance for the first year of operation
3)Electricity Cost
Which of the cost are revenue expenditure?
A. (1),(2) and (3)
B. (1) and (2) only
C. (1) and (3) only
D. (2) and (3) only
Question#16:
Daisy Co owns a non-current asset which cost $75,000 on 1 June 20X6. It had a useful life of 10 years
and an expected residual value of $5,000. Non-current assets are depreciated using the straight line
method.
On 1 June 20X8, Daisy Co estimated that the remaining life of the asset was now only five years with an
expected residual value of $3,000.
What should the depreciation charge be for the financial year ending 31 May 20X9 $_____?
Question#17:
Derby bought a factory on 1 January 20X3 for $180,000. It is depreciated monthly on a straight line basis
over 50 years. On 1 July 20X6 the factory was revalued to $223,200.
What should the depreciation charge be for the year ended 31 December 20X6?
A. $4,800

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B. $4,464
C. $4,200
D. $4,226
Question#18:
Derby bought a factory on 1 January 20X3 for $200,000. It is depreciated monthly on a straight line basis
over 50 years. On 1 July 20X6 the factory was revalued to $223,200.
What should the depreciation charge be for the year ended 31 December 20X6____?
Question#19:
Harry bought a new machine. Following costs are incurred:
1) Installation charges
2)Import Duty
3)Electricity Cost
Which of the cost are capital expenditure?
A. (1),(2) and (3)
B. (1) and (2) only
C. (1) and (3) only
D. (2) and (3) only
Question#20:
In the year ended 30 November 20X9, Karl sold a machine for $5,800. The machine had been bought for
$15,000 in July 20X5. Karl depreciates machinery at 20% per annum on the reducing balance basis. He
charges a full year's depreciation in the year an asset is purchased, and no depreciation in the-year of
sale.
What was the profit or ioss on disposal of the machine?
A. $344 loss
B. $344 profit
C. $2,800 loss
D. $2,800 profit

From The Desk Of Sir Mustafa Mirchawala: Page 4