Non-Current Assets- Exercise – Excel Accountancy

1. A business purchased a motor car on 1 July 20X3 for $20,000. It is to be depreciated at 20 per cent per year on the straight-line basis, assuming a residual value at the end of five years of $4,000, with a proportionate depreciation charge in the years of purchase and disposal.

The $20,000 cost was correctly entered in the cash book but posted to the debit of the motor vehicles repairs account.

How will the business profit for the year ended 31 December 20X3 be affected by the error?

Understated by $16,800

Overstated by $18,400

Understated by $18,400

Overstated by $16,800

2. What are the correct ledger entries to record an acquisition of a non-current asset on credit?

Debit: Non-current assets – cost
Credit: Revaluation surplus

Debit: Payables
Credit: Non-current assets – cost

Debit: Non-current assets – cost
Credit: Payables

Debit: Non-current assets – cost
Credit: Receivables

3. A car was purchased by a newsagent business in May 20X0 for:
Cost $ 10,000
Road tax $ 150
Total $ 10,150
The business adopts a date of 31 December as its year end. The car was traded in for a replacement vehicle in August 20X3 at an agreed value of $5,000.

It has been depreciated at 25% per annum on the reducing balance method, charging a full year’s depreciation in the year of purchase and none in the year of sale.

What was the profit or loss on disposal of the vehicle during the year ended December 20X3?

Profit: $1,836

Profit: $1,788

Profit: $718

Profit: $781

4. Which one of the following would occur if the purchase of computer stationary was debited to the computer equipment at cost account?

An overstatement of profit and an understatement of non-current assets

An understatement of profit and an understatement of non-current assets

An understatement of profit and an overstatement of non-current assets

An overstatement of profit and an overstatement of non-current assets

5. Which of the following best explains what is meant by ‘capital expenditure’?

Expenditure on expensive assets

Expenditure on non-current assets, including repairs and maintenance

Expenditure relating to the issue of share capital

Expenditure relating to the acquisition or improvement of non-current assets

6. What is the purpose of charging depreciation in financial statements?

To account for the ‘wearing-out’ of the asset over its life

To reduce the cost of the asset in the statement of financial position to its estimated market value

To allocate the cost of a non-current asset over the accounting periods expected to benefit from its use

To ensure that funds are available for the eventual replacement of the asset

7. Which one of the following statements correctly defines non-current assets?

Assets which are intended to be used by the business on a continuing basis, including both tangible and intangible assets that do not meet the IASB definition of a current asset

Assets in the form of materials or supplies to be consumed in the production process

Non-monetary assets without physical substance that are controlled by the entity and from which future benefits are expected to flow

Assets that are held for use in the production of goods or services and are expected to be used during more than one accounting period

8. The plant and machinery at cost account of a business for the year ended 30 June 20X4 was as follows:

PLANT AND MACHINERY – COST

Debit	$	Debit	$
20X3		20X3
1 Jul Balance	240,000	30 Sep Transfer disposal account	60,000
20X4		20X4
1 Jan Cash – purchase of plant	160,000	30 Jun Balance	340,000
Total	400,000	Total	400,000

The company’s policy is to charge depreciation at 20% per year on the reducing balance basis, with proportionate depreciation in the years of purchase and disposal.
What should be the depreciation charge for the year ended 30 June 20X4?

$68,000

$61,000

$64,000

$55,000

9. An organisation’s asset register shows a carrying amount of $145,600. The non-current asset account in the nominal ledger shows a carrying amount of $135,600.

The difference could be due to a disposed asset not having been deducted from the asset register. Which one of the following could represent that asset?

Asset with disposal proceeds of $15,000 and a profit on disposal of $5,000

Asset with disposal proceeds of $5,000 and a carrying amount of $5,000

Asset with disposal proceeds of $15,000 and a carrying amount of $5,000

Asset with disposal proceeds of $15,000 and a loss on disposal of $5,000

10. Which one of the following assets may be classified as a non-current asset in the financial statements of a business?

Cleaning products used to clean the office floors

A computer used in the office

A motor vehicle held for resale

A tax refund due next year

	$
Repairs cost overstated	20,000
Depreciation understated ((20,000 – 4,000) ´ 20% ´ 6/12)	-1,600
Profit understated	18,400

	$
Cost	10,000
20X0 Depreciation	-2,500
	7,500
20X1 Depreciation	-1,875
	5,625
20X2 Depreciation	-1,406
	4,219
20X3 Part exchange	-5,000
Profit	-781

	$
Plant held all year (240,000 – 60,000) X 20%	36,000
Addition 160,000 X 20% X 6/12	16,000
Disposal 60,000 X 20% X 3/12	3,000
	55,000

Financial AccountingNon-Current Assets- Exercise

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