ACCOUNTING FOR NON-CURRENT ASSETS
REVISION QUESTIONS C2
160
Sale proceeds Length of ownership
(A) Cannot be calculated Cannot be calculated
(B) Cannot be calculated 2 years
(C) $8,000 Cannot be calculated
(D) $8,000 2years
1.5 A machine costs $9,000. It has an expected useful life of 6 years, and an expected
residual value of $1,000. It is to be depreciated at 30 per cent per annum on the
reducing-balance basis. A full year’s depreciation is charged in the year of purchase,
with none in the year of sale. During year 4, it is sold for $3,000. The profi t or loss
on disposal is:
$ . . . . . . . . . . . . .
1.6 The most appropriate defi nition of depreciation is:
(A) a means of determining the decrease in fair value of an asset over time.
(B) a means of allocating the cost of an asset over a number of accounting periods.
(C) a means of setting funds aside for the replacement of the asset.
(D) a means of estimating the fair value of the asset.
1.7 A non-current asset was disposed of for $2,200 during the last accounting year. It
had been purchased exactly 3 years earlier for $5,000, with an expected residual
value of $500, and had been depreciated on the reducing-balance basis, at 20 per
cent per annum. The profi t or loss on disposal was:
$ . . . . . . . . . . . . .
1.8 The purpose of charging depreciation on non-current assets is:
(A) to put money aside to replace the assets when required.
(B) to show the assets in the statement of fi nancial position at their fair value.
(C) to ensure that the profi t is not understated.
(D) to spread the net cost of the assets over their estimated useful life.
1.9 The phrase ‘ carrying amount ’ when applied to non-current assets means that
(A) the assets are shown in the statement of fi nancial position at their original cost.
(B) the assets are valued at their likely selling price.
(C) the assets have been depreciated using the reducing-balance method.
(D) the assets are shown in the statement of fi nancial position at their cost less accu-
mulated depreciation.
1.10 Which of the following statements regarding goodwill is not correct?
(A) Goodwill is classed as an intangible non-current asset.
(B) Goodwill is the excess of the value of a business as a whole over the fair value
of its separable net assets.
(C) Purchased goodwill may be shown on the statement of fi nancial position and
may be reduced by impairment.
(D) Non-purchased goodwill is a liability.