Accounting Multiple Choice Question – 5 April 2024

Alex plc, a retailer, depreciates all vehicles monthly over five years.

On 31 October 2019 Alex plc bought a car at a cost of £18,000 plus VAT, trading in an old car that had cost £16,800 including VAT on 1 July 2017.

A cheque for £13,500 was also handed over. VAT is at a rate of 17.5%.

In respect of this disposal in its income statement for the year ended 31 December 2019 Alex plc will show a loss of?

Select ONE answer:

1. £1,310
2. £2,430
3. £4,460
4. £5,580

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. Correct – VAT is not treated as input tax when a car is purchased for use in a business (as opposed to being bought as inventory by a car dealer). As Alex plc is a retailer, we can assume that the gross figure should be taken as the cost of both vehicles. The old car had been depreciated for 28 months when it was traded in.
2. Not correct
3. Not correct
4. Not correct

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