IGCSE Accounting Paper-2: Specimen Questions with Answers 18 - 20 of 189

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Passage

Mr. Jack purchases machinery at a cost of £ 100000. The life of the machinery is said to be 3 years At the end of 3 years the machinery is sold as scrap at £ 20000.

Question 18 (3 of 5 Based on Passage)

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What are the methods available to Mr. Jack to calculate depreciation on the machinery?

Explanation

Mr. Jack can use any of the two widely used methods to calculate depreciation on his machinery. The methods are:

(i) Straight Line Method

(ii) Written down value Method

Question 19 (4 of 5 Based on Passage)

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Calculate the profit or loss of Mr. Jack if he depreciates the machinery on Written down value method

Explanation

Profit of £ 489

Deprecation in the Books of Mr. Jack on the Basis of Written down Value Method
PARTICULARSAMOUNT
Cost of asset in year 1100000
Less Depreciation@42 %42000
Book value at the end of year 158000
Book value at the beginning of year 258000
Less Depreciation@42 %24360
Book value at the end of year 233640
Book value at the beginning of year 333640
Less Depreciation@42 %14129
Book value at the end of year 319511
Scrap value20000
Profit = Scrap Value - Book Value489

Question 20 (5 of 5 Based on Passage)

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Why should Mr. Jack depreciate his machinery before selling it as scrap?

Explanation

Any asset over a period of time becomes old and incurs wear and tear expenditure. Hence Mr. Jack should depreciate his machinery to know the book value of it in order to ascertain whether he sold the asset at profit or loss.

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