Day: April 3, 2024

Accounting Multiple Choice Question – 3 April 2024

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

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Alex plc acquired a machine on 31 March 2024, its year end, for £196,600.

It gave the seller a cheque for £110,000 and handed over an old machine with a carrying amount at that date of £34,400.

This machine had cost £60,000. A further sum of £42,000 was then due to the supplier the machine as the final payment.

The only entries made before the initial trial balance was drawn up were to credit cash £110,000 and credit other payables £42,000.

As well as crediting Suspense with £152,000, which of the following sets of adjustments should be made on the extended trial balance to reflect the purchase and disposal in Alex plc’s financial statements?

Select ONE answer:

  1. Debit Machine – cost £196,600, Debit Machine – accumulated depreciation £34,400 – Credit Disposal £79,000
  2. Debit Machine – cost £136,600, Debit Machine – accumulated depreciation £34,400 – Credit Disposal £19,000
  3. Debit Machine – cost £196,600, Debit Machine – accumulated depreciation £25,600 – Credit Disposal £70,200
  4. Debit Machine – cost £136,600, Debit Machine- accumulated depreciation £25,600 – Credit Disposal £10,200

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 4

  1. Not correct
  2. Not correct
  3. Not correct
  4. Correct – The accumulated depreciation at the part exchange date is (60,000 – 34,400) = £25,600, and this must be eliminated from the accumulated depreciation account by debiting the account. The machine cost account is debited with the difference between the cost of the old and new machines (196,600 – 60,000) = £136,600. Alex plc is paying a total cash/payables figure of (110,000 + 42,000) = £152,000 for the machine, therefore the part-exchange allowance is (196,600 – 152,000) = £44,600. This is compared to the carrying amount of £34,400 to give a gain on disposal of £1 0,200. DR Accumulated depreciation  £25,600 DR Cost  £136,600 CR Disposal  £10,200 CR Suspense  £152,000

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