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Review Questions

5 August, 2015 - 14:41

Volume 1 - Chapter 27

1. A firm buys equipment on 1 July 20X3 for £6,500. The equipment is to be depreciated on a monthly basis at 20% on cost. On 31 December 20X5 the equipment is sold for £2,700 cash.

(a) Show the provision for depreciation on equipment account for 20X3, 20X4 and 20X5. (b) Show the equipment disposal account as at 31 December 20X5

2. A company depreciates its machinery at the rate of 10% per annum using the reducing balance method. A machine is sold on 30 June 20X7 for £900 which had originally been purchased for £5,000 on 1 January 20X4. No depreciation is to be provided for in the year of sale.

(a) Show the provision for depreciation on machinery account for 20X4 to 20X7. (b) Show the asset disposal account to record the sale of the machinery (c) Show the entry in the profit and loss account for 20X7.

3. A firm sells equipment which had cost £15,000 for cash proceeds of £3,200. At the date of the sale, the balance on the account for depreciation for this equipment stood at £9,700.

Construct the asset disposal account for the equipment sold.

4. A firm purchases machinery on 1 January 20X5. The machinery cost £12,000 and is to be depreciated using the reducing balance method – using a rate of 25%.

Show the depreciation account for the first three years of the asset’s life