CIE Accounting Paper-1: Specimen Questions 122 - 123 of 214

Passage

Mosses started a business on 1 December 2015 printing designs on Sarees and bought a printing machine for $32000.

He decided to depreciate the printing machine on the straight line basis over 10 years and expected the machine to have a scrap value of $7000 after that time.

Question number: 122 (1 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

Complete the following extract from Mosses’s balance sheet at as on 2017.

Extract of Mosses balance sheet as on 2017

Shows table in Extract of Mosses balance sheet as on 2017

Cost $

Provision for Depreciation $

Net book value $

Fixed assets

Machinery

Explanation

Mosses Balance Sheet as on 2017 (extract)

Extract of Mosses balance sheet as on 2017.

Shows table in Extract of Mosses balance sheet as on 2017

Cost $

Provision for Depreciation $

Net book value $

Fixed assets

Machinery

32000

5000

27000

The fixed assets will not disclose a true and fair view of the firm, if depreciation is not provided by the firm. The fixed assets will show a true value only when the depreciation is provided at the end of every year.

Question number: 123 (2 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

Give one reason why depreciation on fixed assets are shown in an income and statement.

Explanation

The primary objectives are as follows:

  • To ascertain of true profit
  • Presentation of true financial position of the firm.
  • No distortion of divisible profits.

The value of an asset may get exhausted due to it over usage. The reduction in the asset should be provided from the income in order to calculate the true and real income of the business. Thus depreciation on fixed assets is shown in the profit and loss accounts.

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