IGCSE Accounting Paper-1: Specimen Questions with Answers 291 - 292 of 338

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 Using the Straight Line Method of Depreciation
Furniture
Cost

$

Accumulated Depreciation

$

At 31 Dec 20165500011000
At 31 Dec 20175500016500

There were no new purchase or disposal during the year ended 31 Dec 2017.

Question 291 (5 of 5 Based on Passage)

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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)

Explanation

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.

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