PRACTICE QUESTIONS DEPRECIATION
Question 1
A business purchased a fixed asset on 1/1/2015 for £25,000, with an estimated useful life of 6 years and a residual value of £
7,000.
Assuming a straight line method was used for depreciation, calculate the depreciation charge for the year? Show all workings and
in particular, show how it will be entered into the final accounts.
Question 2
A business purchased a machine on 1/7/2015 for £35,000. The machine had an estimated residual value (Scrap value) of £3,000
and a UEL of 8 years. It is company policy to charge a full years depreciation charge in the year of acquisition but none in the
year of disposal.
Assuming a straight line method was used for depreciation, calculate the depreciation charge for the year? Show all workings and
in particular, show how it will be entered into the final accounts.
Question 3
On 1st January 2015, a business has machinery costing £110,000. Depreciation is provided at 20% per annum straight line. Total
accumulated depreciation (ie provision for depreciation) is £70,000. Calculate the depreciation charge for the year and show all
relevant ledger entries. Clearly show the Income Statement entries and the Balance Sheet entries.
Question 4
A tractor is bought for 6,000. It has a useful life of 4 years. It’s scrap value is 1,500. What is the annual depreciation charge on a
straight line basis?
a)
b)
c)
d)
1500
1125
1750
2250
Question 5
Explain what is meant by the term depreciation and describe the principal causes of depreciation.
Question 6
A firm bought a machine for £3,200. It is to be depreciated at a rate of 25% using the reducing balance method. What would be
the remaining net book value after two years?
A
£2,400
B
£1,600
C
£1,800
D
None of the above
Question 7
A firm purchased a machine for €33,000. It expects to use it for eleven years and then sell it for €11,000. If the straight line
depreciation method is used, the annual depreciation charge in respect of the machine is
A
£3,000
B
£1,000
C
£2,000
D
£2,500
Question 8
Office fittings that cost £10,000 on 1/1/03 have an estimated useful life of 5 years. Their scrap value is expected to be £1,000. The
annual depreciation using the straight-line method is:
a) 1,800
b) 2,300
c) 1,000
d) 1,230
Question 9
Wilson Traders owns a vehicle that was purchased on 1 January 2012 for £24,000. It is business policy to depreciate vehicles by
20% per annum using reducing balance method. Calculate the depreciation charge on the vehicles for each of the years ended 31
December 2012, 2013 and 2014. Show the relevant income statement and balance sheet entries.
1
Mr. Barry
PRACTICE QUESTIONS DEPRECIATION
Question 10
The following information is available about a business’s non-current assets.
NON-CURRENT
COST
DEPRECIATION
DEPRECIATION
ASSET
£
RATE
METHOD
Office Equipment
18,500
20%
Straight line
Machinery
86,000
40%
Reducing balance
Calculate the depreciation charge on each non-current asset for Year 2. Please show the relevant ledgers, income statement and
balance sheet entries for each asset.
Question 11
Carson PLC has provided you with the following information in relation to its non-current assets. The company’s accounting
period ended at 31st December 2014.
Balances as at 1st Jan 2014
Machinery
Equipment
Cost
Accumulated depreciation
£90,000
£36,000
£30,000
£15,000
Depreciation rates
Additions during 2014
10% - Straight Line
£18,000
10% - Straight Line
£12,000
A full year’s depreciation is provided in the year of purchase and none in the year of sale.
REQUIRED
(a)
The Machinery Account
(b)
The Equipment Account
(c)
The two separate Provision for Depreciation Accounts
(d)
Explain in detail two causes of depreciation of a non-current asset.
(3 Marks)
(3 Marks)
(8 Marks)
(2 Marks)
Question 12
AB Ltd maintains its non-current assets accounts at cost. Depreciation provision accounts, one for each type of asset, are in use.
Machinery is to be depreciated at the rate of 15% per annum and fixtures at the rate of 10% per annum, using the reducing balance
method. Depreciation is to be calculated only on assets in existence at the end of each year, charging a full year’s depreciation
even though the asset was bought during the year.
The following transactions in assets have taken place:
2013
2014
1 January
1 July
1 October
1 December
Bought Machinery £3,200, and Fixtures £5,000
Bought Fixtures £10,000
Bought Machinery£3,600
Bought Fixtures £1,000
The financial year-end of the business is 31st December.
REQUIRED:
For the years 31st December 2013 and 2014 please show:
(a) The Machinery Account
(2 marks)
(b) The Fixtures Account
(2 marks)
(c) Machinery Accumulated Depreciation Account
(3 marks)
(d) Fixtures Accumulated Depreciation account
(3 marks)
(e) The Non-current assets Section of the Balance Sheet as at 31st December 2003 & 2004
(4 marks)
(f) State two principle causes of depreciation?
(2 marks)
2
Mr. Barry