CIE Accounting Paper-1: Specimen Questions 143 - 144 of 214

Passage

Peacock Limited is planning to buy a machinery costing $4500 for use in its business. It estimates the machinery will have a useful life of four years and will have a scrap value of $750 after that time. The company decides it will depreciate the machinery on the reducing balance method at the rate of 20 % per annum.

Question number: 143 (4 of 4 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

Peacock Limited compared the calculated net book value of the machinery after four years with its expected scrap value after four years, $750.

State whether you consider the percentage rate the company should be using to calculate the depreciation should be higher or lower. Give a reason for your answer.

Explanation

The percentage of depreciation is low.

The scrap value after the four year is $750 which is lower than the net book value of the machinery after four years. Hence $1843.2 is greater than the scrap value $750. The percentage of depreciation is lower when compared with net book value of the machinery.

Question number: 144

Short Answer Question▾

Write in Short

Correct the following errors found in the Daniel account and put tick mark in which side suspense account will appear in rectification of these errors:

Posting of suspense account in the rectification of errors.

Find out Debit and creadit

Errors

Particulars

Debit

Credit

i.

Commission $120 paid has been posted twice to commission account.

ii.

The Day Book is totaled $100 short

iii.

Payment of trade expenses $275 entered on the payment side of the cash book is omitted to be posted.

Explanation

finding a Posting of suspense account in the rectification of errors.

Find out Debit and creadit

Errors

Particulars

Debit

Credit

i.

Commission $120 paid has been posted twice to commission account.

ii.

The Day Book is totaled $100 short

iii.

Payment of trade expenses $275 entered on the payment side of the cash book is omitted to be posted.

The suspense account is placed when any unaccounted difference is showed in trial balance. The balance in suspense account is the net effect of all the errors which affect the trial balance. The ‘suspense account’ helps in tallying the balance sheet.

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