IGCSE Accounting Paper-2: Specimen Questions with Answers 157 - 158 of 189

Question 157

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Write in Short

Short Answer▾

Explain the straight line method of depreciation. Also show through an example how annual depreciation is worked out under this method. (Marks 4)

Explanation

Under straight line method, an equal amount of depreciation as a fixed percentage of the cost of the asset is charged to the P&L A/c over the years till the balance of the asset gets zero or reduced to its scrap value. The annual depreciation under this method is worked out through the following formula-

For Example, if a machine costing $ 4200 is estimated to have a life of 10 years and its scrap value is estimated to be $ 200 at the end of the tenth year. Then the annual depreciation on the machine would be

Passage

Mohan Bhagwat՚s is a businessman who closes his accounts on 30 June every year. He does not maintain a full set of accounting records.

All goods are bought and sold on credit terms.

He provided the following information.

Businessman Who Closes His Accounts on 30 June Every Year
Dollar $
For the year ended 30 June 2019:
Payments to Trade creditors42300
Receipts from Trade debtors55200
Discount allowed to Trade debtors700
Purchases Returns1400
Bad debts written off70
Carriage inwards3000
On 1 July 2018:
Trade Creditors1600
Trade Debtors3500
Inventory1100
On 30 June 2019:
Trade Creditors2200
Trade Debtors4130

Question 158 (1 of 3 Based on Passage)

Write in Short

Short Answer▾

Calculate the value of the inventory on 30 June 2019 by preparing an income statement (trading account section) .

Mohan Bhagvat

Income Statement (Trading Account Section) for the year ended 30 June 2019

The Income Statement Income Statement
Dollar $Dollar $

Explanation

Mohan Bhagvat

Income Statement (Trading Account Section) for the year ended 30 June 2019

The Income Statement Income Statement the Year Ended 30 June 2019
Dollar $Dollar $
Sales56600
Less: Cost of Goods Sold (II)
Opening Stock1100
Purchases $ 44300

Less: Purchases Returns $ 1400

42900
Carriage Inward3000
47000
Less: Closing Stock (III)172045280
Gross Profit (I)11320

Workings-

(I)

Let Sales be 125 % , then,

(II)

(III)

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