Accounting Multiple Choice Question – 24 November 2019

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

Accounting

On 31 August 1992 a firm bought a machine for £44,000. At that date, the estimated useful economic life of the machine was seven years and its estimated residual value was £2,000.

On 30 June 19% the firm sold the machine for £18,000. The firm’s accounting period—end is 31 December and its policy is to calculate depreciation using the straight line method, charging a full year’s depreciation in the year of acquisition and no depreciation in the year of disposal.

The profit earned. or the loss incurred, on the disposal of the machine was:

Select ONE answer:

  1. Loss of £2,000
  2. Loss of £3,000
  3. Loss of £3,500
  4. Profit of £4,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

  1. Annual depreciation charge = (£44,000 – £2,000) / 7 = £6,000
    Total depreciation charged = 4 years * £6,000 pa. = £24,000 (1996 = 0)
    NBV = Cost – Total depreciation = £44,000 – £24,000 = £20,000
    Profit or loss on sale = Proceeds – NBV = £18,000 – £20,000 = £2,000 loss
  2. Not Correct
  3. Not Correct
  4. Not Correct

 

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Author: stuart001uk2014

Referral marketing, business, economics and accounting s​pecialist & corporate mentor

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