Chapter 9 - Adjustments to the profit and loss account and balance sheet: part 2
Multiple-choice exercise
Choose the correct answer for each question.
Untitled Document
Information needed to complete quiz
Chapter 9
Question 3
Minnie’s retail business is doing so well that she decides to rent additional shop premises. She has to buy new shelving, a till and other fittings for the new shop, and during her accounting year to31 January 20X5 she spends £10 420 on these items. Her accounts to 31 January 20X4 showed the following balances in respect of shop fittings:
£
Shop fittings at cost
23 700
Less: depreciation
(12 440)
Net book value
11 260
Minnie depreciates shop fittings at 20% peryear on the reducing balance basis.
Questions 7 - 9
Nelson depreciates the cars owned by his business on the reducing balance basis at 30% per year, with a full year’s depreciation in the year of acquisition and none in the year of disposal. At 31 December 20X6 the totals shown for cars in his balance sheet are:
£
Cars at cost
42 450
Less: depreciation
(23 772)
Net book value
18 678
During his financial year to 31 December 20X7 Nelson buys a new car for £15200. He sells one of the existing cars for £2200; it had cost him £12600 on 1 January 20X2.
Mavis owns a launderette. She installed all the washing machines three years ago, on 1 January 20X3, at a cost of £12 800. She depreciates the washing machines at the rate of 15% per annum on the reducing balance basis. What is the depreciation charge for the washing machines to profit and loss account in her accounting year to 31 December 20X6 (to the nearest £).
£1179
£6682
£1920
£6118
On 12 September 20X4 Marcus buys a new delivery vehicle for use in his mobile pizza delivery business. Marcus's policy is to depreciate vehicles at 20% on the straight line basis, with a charge to depreciation for each full month of ownership. He estimates that he will be able to sell the vehicle in 5 years' time for £300. What is the depreciation charge in respect of this vehicle in Marcus's profit and loss account for the year ending 28 February 20X5 (to the nearest £)?
£1283
£1308
£3080
£3140
Minnie, see information. How much depreciation is shown in Minnie's profit and loss account for the year ending 31 January 20X5 in respect of shop fittings?
£2252
£4336
£2084
£4740
Mohin has a plumbing business. He buys a new van for £22 000 but it needs modification before he can use it. He pays a welder £904 to install racks inside the van for his equipment, and pays £320 to a sign firm to have the business name and contact details sprayed on the side of the van. Mohin adopts a policy of straight line depreciation, with a full year's depreciation included in the profit and loss account in the year of acquisition of an asset. He buys the van in his accounting year to 31 December 20X4. He estimates that he will be able to sell the van after 5 years for approximately £6000. What is the net book value of the van in Mohin's balance sheet at 31 December 20X4 (to the nearest £)?
£18 579
£18 800
£19 775
£17 224
Nadine runs a florist's business from two branches. The volume of trade has been poor at one of the shops for some time now, and Nadine decides to sell the shop and its fittings. She originally bought the shop, freehold, on 1 January 20X2 for £115 000. She has depreciated it at 2% per year on the straight line basis. The shop fittings were bought at the same time for £25 000, and have been depreciated on the straight line basis over ten years, with an assumption that they would be worthless by the end of the ten year period. On 1 January 20X8 Nadine accepts an offer of £128 500 for the shop and its fittings. What is Nadine's profit or loss on the sale of the shop and fittings?
£3 500 profit
£11 500 loss
£5 300 profit
£17 300 profit
Nadya disposes of a fixed asset on 13 May 20X6 for £10 000. The asset was bought on 5 February 20X4 for £23 600. Nadya applied the straight line depreciation method of 20% per year, with the assumption that the asset would be sold for £2500 after 5 years. Nadya's policy is to calculate depreciation for each full month of ownership in the accounting year. What is her profit or loss on sale (to the nearest £)?
£4 456 loss
£1 956 loss
£856 profit
£940 loss
Nelson, see information. What is the figure for cars at cost to be shown in Nelson's balance sheet at 31 December 20X7?
£57 650
£21 278
£55 450
£45 050
Nelson (continued) What is the profit or loss on the sale of Nelson's car (to the nearest £)?
£83 profit
£825 loss
£718 profit
£83 loss
Nelson (continued). What is the net book value of cars to be shown in Nelson's balance sheet at 31 December 20X7 (to the nearest £)?
£31 761
£22 233
£31 678
£21 278
Otto has a car held at net book value of £4626 in his accounts. If he sells the car for £4000 he makes a loss of £626. Using the accounting equation, what is the effect on his assets, capital and liabilities?
Assets increase; capital no change; liabilities decrease
Assets increase; capital increases; liabilities no change
Assets decrease; capital decreases; liabilities no change
Assets decrease; capital no change; liabilities increase