Accounting Multiple Choice Question – 28 March 2024

On 1 June 2013 Alex plc purchased some plant at a price of £43,000.

It cost £1,500 to transport the plant to Alex plc’s premises and set it up, plus £900 for a licence to operate it.

The plant had a useful life of 8 years and a residual value of £3,500.

On 1 June 2015, the directors of Alex plc decided to change the depreciation method to reducing balance, at 40%.

What is the carrying amount of Alex plc’s machine in its statement of financial position at31 May 2016?

Select ONE answer:

1. £20,025
2. £20,280
3. £20,550
4. £20,955

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 3

1. Not correct
2. Not correct
3. Correct – The initial amount capitalised is £44,500, as the licence cost is excluded from the value of the plant because it is not a directly attributable cost. Depreciation is initially ((44,500 – 3,500)/8) = £5,125 per annum, so at 1 June 2015 the carrying amount is (44,500 – (2 x 5,125)) = £34,250. Depreciation is then charged at 40% on this figure, giving a depreciation figure of £13,700 for the year to 31 May 2016, and a carrying amount of £20,550
4. Not correct

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