A-AS Level (CIE) Accounting Paper-2: Specimen Questions with Answers 31 - 32 of 53

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Question 31

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Explain the term:

(a) Amortization

(b) Depletion

Explanation

(a) Amortization: Intangible assets such as goodwill, trademarks and patents are written off over a few accounting periods covering their estimated useful lives. This periodic write off is known as Amortization and that is quite like depreciation of tangible assets. The term amortization is also used for writing off leasehold premises. Amortization is normally recorded as a credit to the asset account directly or to a distinct provision for depreciation account.

(b) Depletion: Depletion is especially suited to mines, oil wells, quarries, sandpits, and similar assets of a wasting character. In this method, the cost of the asset is divided by the total workable deposits of the mine etc. and by following the above manner rate of depreciation can be ascertained. Depletion can be distinguishable from depreciation in physical sinkage or lessening of an estimated available quantity and the latter implying a reduction in the service capacity of an asset.

Passage

Following are the financial statements of Kyoor ltd.

Following Are the Financial Statements of Kyoor Ltd
1992
Net Sales1,82, 500
Less: cost of sales1,42, 500
Gross Profit40,000
Less: Operating Expenses25,000
Net profit15,000
Cash and Bank Balance5,000
Debtors30,000
Stock50,000
Prepaid Expenses5,000
Fixed Assets2,10, 000
3,00, 000
Creditors40,000
Bills payable10,000
Mortgage loan70,000
Equity share capital1,50, 000
Reserve and surplus30,000

Calculate the following ratios:

Question 32 (1 of 5 Based on Passage)

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(b) Acid test ratio

Explanation

(b)

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