Tag: Capital Expenditure

Alex plc includes profits and losses on disposal of non-current assets in administrative expenses in its income statement.

Alex plc’s policy is for depreciation to be charged on fixtures and fittings at 20% using the reducing balance method.

On 1 July 2016, some fixtures that cost £4,000 on 1 July 20X3 were sold for £150.

In the administrative expenses account Alex plc must?

Select ONE answer:

1. Debit £1,450
2. Credit £1,450
3. Debit £1,898
4. Credit £1,898

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 debit to administrative expenses is the loss on disposal of £1,898. Cost £4,000 – Acc depn (£4,000 – (£4,000 x 0.8 x 0.8 x 0.8)) £1,952 – Proceeds £150 = Loss of £1,898 i.e. debit to administrative expenses
4. Not correct

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On 1 April 2015 Alex plc bought a Stafford car for £23,500.

The company’s depreciation policy for cars is 30% per annum using the reducing balance method.

On 1 April 2017, the Stafford car was part exchanged for a Derby car, which had a purchase price of £28,200.

Alex plc handed over a cheque to the seller for £19,350, in final settlement.

What was Alex plc’s profit or loss on the disposal of the Stafford?

Select ONE answer:

1. £5,150 loss
2. £7,835 profit
3. £2,665 loss
4. £6,250 loss

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 –> Cost £23,500 – Accumulated Depreciation £11,985 – PEV £8,850 = £2,625 Loss
4. Not correct

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

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

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