IGCSE Accounting Paper-1: Specimen Questions with Answers 140 - 142 of 338

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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 140 (1 of 4 Based on Passage)

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Short Answer▾

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.

Question 141 (2 of 4 Based on Passage)

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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 142 (3 of 4 Based on 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

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