A-AS Level (CIE) Accounting Paper-2: Specimen Questions with Answers 29 - 30 of 53

Question 29

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Short Answer▾

What are the factors determining the amount of Depreciation?

Explanation

It is Impossible to Calculate the Actual and True Amount of Depreciation

It can only be estimated by keeping the following factors into consideration:

  • Total Cost of the Asset: The cost of a fixed asset is determined after adding all expenses incurred for bringing the asset to usable condition, such as freight, transit, insurance, and installation costs etc.
  • Estimated Useful Life of Asset: Useful life of an asset is estimated in terms of number of years, it can be effectively used for business operations. For example, if a machine can work for 25 years but is likely to become obsolete in 15 years on account of availability of a better type of machine due to improved technology, its useful life will be considered as only 15 years.
  • Estimated Scrap Value: It is the estimated sale value of the asset at the end of its useful life. It is also known as residual value or break-up value.

Question 30

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Give two utility of Accounting standards.

Explanation

Utility or Advantages of Accounting Standards

Accounting standards have been evolved to curb the abuse of flexibility in the provide the accountants those accounting policies which are most suitable in each Statements: There are numerous parties which are interested in the accounting adoption of accounting policies by the business enterprises. Accounting Standards situation. The utility of accounting standards may be stated as follows:

  • Accounting Standards improve the reliability and credibility of Financial information of an enterprise. They include the investors, management, creditors, employees, Government Officials, researchers etc. It is therefore necessary that the financial statements present a true and fair view of the financial position and operating results of an enterprise.
  • Accounting Standards ensure the consistency and comparability of Financial Statements: Accounting standards make the financial statements of different enterprises or of the same enterprise for different accounting periods comparable. They bring the uniformity of assumptions, rules and policies adopted in the preparation of financial statements and thus they ensure the consistency and comparability of such statements which in turn ensures better comparison of profitability, financial position, and prospects of an enterprise.

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