Deck 8: Non-Current Assets, Fixed Assets, and Depreciation

Question 1

In the case of Donna's business what was the carrying amount in respect of the cars at the start and end of the current year?

A) £38000 at the start and £22 800 at the end of the year
B) £22800 at the start and £13680 at the end of the year
C) Neither of the above

Answer 1

B

Question 2

Fixed assets are normally classified as non-current assets.

Answer 2

True

Question 3

Depreciation is a precise measure of the wearing out of an asset over a period of time.

Answer 3

False

Question 4

When we make a profit on the sale of an asset this is shown in the cash flow statement.

Question 5

The cost of getting a piece of machinery delivered and installed should never be included in the asset figure included in the statement of financial position.

Question 6

Depreciation only affects the income statement.

Question 7

Using the information in question 15 above what would be the effect of all the transactions during the year on total profit and on the cash flow statement?

A) Total profit would be reduced by £10000 and the cash flow statement would show a net outflow of £26000
B) Total profit would be reduced by £11000 and the cash flow statement would show a net outflow of £26000
C) Total profit would be reduced by £10000 and the cash flow statement would show a net outflow of £11000
D) Total profit would be reduced by £11000 and the cash flow statement would show a net outflow of £15000

Question 8

Jackie had the following transactions in the year. Put £180000 of her own money into the business bank account. Took out a 40 year lease on the premises at a cost of £80000, bought fixtures and fittings or £12000 which she thinks will last four years and then be worth nothing and a car for £15000 which she will use for three years and then sell or an estimated £3000. All assets are to be depreciated or amortised over their useful lives using straight line depreciation. What should the charge to the income statement be in total?

A) £10000
B) £8000
C) £9000
D) £7000

Question 9

Mike ran a chauffeur driven limousine business and had fixed assets consisting of four cars all bought at the same time with a carrying value of £88000. He reckons these will last three years and then be scrapped. The accumulated depreciation at the start of the year was £44000. Six months into the year one of his drivers wrote off a car and the insurance company paid out £20000 to settle the claim. He replaced the car immediately with a better model costing £39000. His policy as regards depreciation is to use straight line depreciation. What is the charge for the year?

A) £44000
B) £46000
C) £45000
D) None of the above

Question 10

Donna had been in the taxi business for two years and had three cars which were all one year old at the start of the current year and which originally cost £38000. She depreciates her cars using the reducing balance method at a rate of 40%. What is the depreciation charge for the current year?

A) £15200
B) £22800
C) £9120
D) None of the above

Question 11

Using the information in Question 17. What is the carrying value of Jackie's fixed assets and how much is in the bank account at the end of the year?

A) £107000 and £73000
B) £98000 and £73000
C) £97000 and - £107000
D) £94000 and £73000
E) £95000 and £73000

Question 12

Included in Leonie's fixed assets was a piece of machinery which cost £68000 and on which depreciation of £32000 had been charged. This was sold during the year for £28000. How would this be recorded in the statement of financial position?

A) Reduce the fixed assets by £68000 and show an increase in bank of £28000
B) Reduce the fixed assets by £36000 and show a corresponding increase in the bank
C) Reduce the fixed assets by £68000, depreciation by £32000 and show an increase in the bank of £36000
D) Reduce the fixed assets by £68000, depreciation by £32000 and show an increase in the bank of £28000
E) None of the above

Question 13

Depreciation will always provide enough money to replace an asset.

Question 14

When we sell a fixed asset for more that its carrying value it increases the overall profit.

Question 15

Using the information in question 13 above what would be the effect, if any, on the income statement and the cash flow statement?

A) Show a loss on sale of fixed asset in the income statement of £8000 and show that as a cash outflow
B) Show a loss on sale of fixed asset in the income statement of £40000 and show that as a cash outflow
C) Show a loss on sale of fixed asset in the income statement of £8000 and show a cash inflow of £36000
D) Show a loss on sale of fixed asset in the income statement of £8000 and show a cash inflow of £28000
E) None of the above

Question 16

The rate of depreciation is always higher when the reducing balance method is used.

Question 17

Robin's business had total assets at the start of the year amounting to £140000 of which £80000 related to current assets. Robin disposed of a fixed asset which had been purchased for £30000 and on which £16000 depreciation had been charged for £15000 and bought a replacement asset for £26000. He charged £11000 depreciation on his assets in the year. What is the fixed asset carrying amount at the end of the year?

A) £45000
B) £61000
C) £136000
D) £56000
E) £72000

Question 18

If the depreciation charge is reduced that will improve the cash flow of the business.

Question 19

Reducing balance depreciation charges more as an expense in the early years than in later years.