A-AS Level (CIE) Business Studies Paper-2: Specimen Questions with Answers 34 - 36 of 52

Passage

Case Study: 10

On st January 1990 X Ltd. purchased a Plant and Machinery for $ 43,000. It was estimated that the effective life of the Plant and Machinery will be 10 years and after 10 years its scrap value will be $ 3,000.

On st January 1991 the Company purchased additional machine for $ . 25,000, of which the effective life will be 15 years and scrap value $ 2,500. value will be ₹ 2,000 and effective life 20 years. On st July 1992 a new machine was purchased for $ 12,000 of which the scrap value will be $ 2000 and effective life 20 years.

Question 34 (1 of 5 Based on Passage)

Edit

Write in Short

Short Answer▾

What is Average Rate of Return?

Explanation

Average rate of return uses the accounting information revealed by the financial statements to measure the profitability of an investment proposal. ARR is determined by dividing the average income after taxes by the average investment. According to Soloman, “Accounting Rate of Return can be calculated as the ratio of average of average net income to the initial investment.”

It is the ratio of average after tax profit divided by the average investment. The average investment would be equal to half of original investment. It can be found out by dividing the total of the investment՚s book values after depreciation by the life of project.

Question 35 (2 of 5 Based on Passage)

Edit

Write in Short

Short Answer▾

Show the depreciation on 1st, 2nd and 3rd Machinery using the straight-line method.

Explanation

Question 36 (3 of 5 Based on Passage)

Edit

Write in Short

Short Answer▾

Explain the effect of depreciation on balance sheet.

Explanation

When a physical asset is purchased by a firm with a useful life that expense should be spread over the useful life of asset. Example if a business purchased a truck for $ 30000 then it is estimated that life of asset is 10 years. Under the most common method of depreciation known as straight line method a company would report a depreciation fund of $ 300 for ten years.

Effect of depreciation on balance sheet is that depreciation as an expense on the income statement, is increased by accumulation of depreciation over time as depreciation is charged against asset for the estimated life.

🎯 Select Paper