IGCSE Accounting Paper-1: Specimen Questions with Answers 140 - 142 of 214

Passage

Peacock Limited is planning to buy a machinery costing $4500 for use in its business. It estimates the machinery will have a useful life of four years and will have a scrap value of $750 after that time. The company decides it will depreciate the machinery on the reducing balance method at the rate of 20 % per annum.

Question number: 140 (1 of 4 Based on Passage) Show Passage

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Short Answer Question▾

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Calculate the depreciation to be charged on the machinery for first two years of its useful life.

1st year ……………………………………………………………………………………….

2nd year…………………………………………………………………………………….

Explanation

1st year $900 and 2nd year $720

1st year =

2nd year =

Question number: 141 (2 of 4 Based on Passage) Show Passage

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What will be asset value at the end of the fourth year?

Explanation

$1843.2

Cost of asset 4500

- Depreciation 900

3600

- Depreciation 720

2880

- Depreciation 576

2304

- Depreciation 460.8

1843.2

The value of asset at the end of fourth year is $1843.2

Question number: 142 (3 of 4 Based on Passage) Show Passage

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Peacock Limited compared the calculated net book value of the machinery after four years with its expected scrap value after four years, $750.

State whether you consider the percentage rate the company should be using to calculate the depreciation should be higher or lower. Give a reason for your answer.

Explanation

The percentage of depreciation is low.

The scrap value after the four year is $750 which is lower than the net book value of the machinery after four years. Hence $1843.2 is greater than the scrap value $750. The percentage of depreciation is lower when compared with net book value of the machinery.