Tag: KS3

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.