# CIE Accounting Paper-2: Specimen Questions with Answers 17 - 19 of 103

## Passage

Mr. Jack purchases machinery at a cost of £100000. The life of the machinery is said to be 3 years At the end of 3 years the machinery is sold as scrap at £20000.

## Question number: 17 (2 of 5 Based on Passage) Show Passage

### Write in Short

How will Mr. Jack ascertain the percentage of written down value on the machinery?

### Explanation

Mr. Jack can ascertain the percentage of written down value using the formula

Where R = Percentage rate, N = Years, RV = Residual/Scrap value

## Question number: 18 (3 of 5 Based on Passage) Show Passage

### Write in Short

Why should Mr. Jack depreciate his machinery before selling it as scrap?

### Explanation

Any asset over a period of time becomes old and incurs wear and tear expenditure. Hence Mr. Jack should depreciate his machinery to know the book value of it in order to ascertain whether he sold the asset at profit or loss.

## Question number: 19 (4 of 5 Based on Passage) Show Passage

### Write in Short

Calculate the profit or loss of Mr. Jack if he depreciates the machinery on Straight line method assuming the percentage of depreciation is 25%

### Explanation

Loss of £5000

PARTICULARS | AMOUNT |

Cost of asset in year 1 | 100000 |

Less Depreciation@25% | 25000 |

Book value at the end of year 1 | 75000 |

Book value at the beginning of year 2 | 75000 |

Less Depreciation@25% | 25000 |

Book value at the end of year 2 | 50000 |

Book value at the beginning of year 3 | 50000 |

Less Depreciation@25% | 25000 |

Book value at the end of year 3 | 25000 |

Scrap value | 20000 |

Loss = Book Value - Scrap Value | -5000 |