Tag: Capital Exenditure

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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The bookkeeper of Alex plc has been attempting to reconcile its list of non-current assets held to the non-current assets accounts in the nominal ledger.

The list of non-current assets shows a carrying amount of £300,070, but the net balance of the non-current assets cost and accumulated depreciation accounts in the nominal ledger shows a figure of £351,080.

On investigation the bookkeeper has discovered the only error made during the year was that the disposal of one asset has not yet been recorded in the nominal ledger.

Which TWO of the following scenarios would, individually, explain this difference?

• 1  An asset was disposed of for £40,950 resulting in a profit on disposal of £10,060
• 2  An asset was disposed of for £40,950 resulting in a loss on disposal of £10,060
• 3  An asset was disposed of for £61,070 resulting in a profit on disposal of £10,060
• 4  An asset was disposed of for £61,070 resulting in a loss on disposal of £10,060

Select ONE answer:

1. 1 & 2
2. 1 & 3
3. 2 & 4
4. 2 & 3

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 – 2 & 3 – The error in the cost and accumulated depreciation nominal ledger accounts means that an asset with a carrying amount of (£351,080 – £300,070) = £S1,010 must be credited to these accounts and debited to the disposal account. This is balanced in the disposal account by disposal proceeds of £40,950 and a loss on disposal of £10,060 both being credited (2), and also by disposal proceeds of £61,070 being credited and a profit on disposal of £10,060 being debited (3).

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex plc, which has a year-end of 31 December, purchased a machine on 1 January 2021 for £35,000.

It was depreciated at 40% per annum on the reducing balance basis.

On 1 January 2024, Alex plc part-exchanged this machine for a more advanced model.

Alex plc paid £30,000 and realised a profit on disposal of £2,440.

The price of the new machine was?

Select ONE answer:

1. £10,000
2. £34,680
3. £35,120
4. £40,000

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 4

1. Not correct
2. Not correct
3. Not correct
4. Correct –  The machine has had 3 years’ depreciation at 40% reducing balance. Carrying amount is therefore (£35,000 x 60% x 60% x 60%) = £7,560 Add profit on disposal = £2,440 ==> Part-exchange allowance = £10,000 + Payment £30,000 = Price of new machine = £40,000

This work is licensed under a Creative Commons Attribution 4.0 International License.

A company’s plant and machinery ledger account for the year ended 30 September 2023 was as follows:

PLANT AND MACHINERY

DR  1 October 2022  Balance B/D  £381,200

DR  1 December 2022  Cash  £18,000

DR  Total  £399,200

CR  1 June 2023  Disposal Account  £36,000

CR  30 September 2023  Balance c/d  £363,200

CR  Total  £399,200

The company’s policy is to charge depreciation at 20% per year on the straight-line basis.

What is the depreciation charge in the income statement for the year ended 30 September 2023?

Select ONE answer:

1. £74,440
2. £84,040
3. £72,640
4. £76,840

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 –  December addition – 18,000 x 20% x 10/12 = £3,000,  June disposal – 36,000 x 20% x 8/12 = £4,800,  Balance – 345,200 x 20% = £69,040 = Total  £76,840

This work is licensed under a Creative Commons Attribution 4.0 International License.

An asset register showed a total carrying amount of £67,460.

A non-current asset costing £15,000 had been sold for £4,000, making a loss on disposal of £1,250.

No entries had been made in the asset register for this disposal.

The correct balance on the asset register is?

Select ONE answer:

1. £42,710
2. £51,210
3. £53,710
4. £62,210

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 –  Balance b/d £67,460  Less: Cost of non-current asset sold £15,000 Add: accumulated depreciation of asset sold (15,000 -(4,000 + 1,250)) = £62,210

This work is licensed under a Creative Commons Attribution 4.0 International License.