IGCSE Accounting Paper-1: Specimen Questions with Answers 291 - 292 of 341
Passage
Anand depreciates his furniture using the straight line method of depreciation. He provides a full year depreciation in the year of purchase and none in the year of disposal. He provided the following information:
Furniture | ||
Cost $ | Accumulated Depreciation $ | |
At 31 Dec 2016 | 55000 | 11000 |
At 31 Dec 2017 | 55000 | 16500 |
There were no new purchase or disposal during the year ended 31 Dec 2017.
Question 291 (5 of 5 Based on Passage)
Write in Short Short Answer▾
State one method of depreciation other than the straight line method, and explain with an example how the depreciation is calculated using that method. (Marks 3)
EditExplanation
Production Unit Method: Under this method, a fixed rate of depreciation per unit of production is calculated by the following formula-
For Ex- If a machinery was purchased for $ 5500 whose scrap value is $ 500. The physical units of product are 2500. The rate of depreciation would be calculated as follows-
Question 292
Question MCQ▾
ABC Ltd. bought a building at a cost of $ 2,00, 000 in 2010, the fair market value of which stands at $ 4,50, 000 on 31 December 2019. ABC Ltd. shows the building at $ 4,50, 000 in his balance sheet on 31 December 2019. Which accounting principle is violated here?
Choices
Choice (4) | |
---|---|
a. | Going Concern Principle |
b. | Conservatism Principle |
c. | Cost Principle |
d. | Realization Principle |
Answer
c.Explanation
- Cost Principle says that the fixed assets of a business should always be recorded at their original cost regardless of their current market price. The original cost is the amount actually paid for its acquisition.
- The building in this case should be shown at the price paid by ABC Ltd. to acquire it i.e.. at $ 2,00, 000.