2023 Papers Topical Revision Ch 11 NCA set 6

Name: ……………………………. ( ) Class: …………… Date: ………............ 2023 Papers Topical Revision: Non-current Assets set 6 Q 1 ST GABRIEL Chris operates a printing business. He commenced business on 1 August 2021. His business has the following transactions relating to office equipment. 2021 $ 2 August Chris brought his laptop into the business. 2 000 2022 24 March Bought a photocopier machine on credit from IPM. 50 000 26 March Issued a cheque to pay for installation of the photocopier machine bought. 3 500 31 March Issued another cheque for the yearly maintenance of the photocopier machine bought. 1 500 REQUIRED (a) Prepare the office equipment account for Chris’ business for the year ended 31 July 2022. Bring down the balance on 1 August 2022. [4] Chris also had the following balances for his motor vehicles on 1 August 2022. $ Motor vehicles 240 000 Accumulated depreciation of motor vehicles 75 000 On 1 November 2022, he bought a new motor vehicle for $80 000 by cheque. He depreciates his motor vehicle at 10% per annum on book value, using reducing-balance method. REQUIRED (b) Calculate the depreciation charged on motor vehicle for the year ended 31 July 2023. [3] (c) State the effect on profit for the year if straight-line method was used for depreciating motor vehicle for the year ended 31 July 2023. [3] (d) Explain how the matching theory is applied when providing depreciation for non-current assets. [2] [Total: 12]

Q 2 PRESBYTERIAN HS Ray owns a number of non-current assets. He depreciates them annually. REQUIRED (a) Using an accounting theory, explain why Ray depreciates his non -current assets annually. [2] Ray provided the following balances of his non-current assets on 1 January 2022. Cost $ Accumulated depreciation $ Fixtures and fittings 24 800 8 600 Motor vehicles 84 000 12 000 Ray depreciates his fixtures and fittings at 20% per annum on cost and 25% per annum on net book value for motor vehicles. On 1 October 2022, Ray bought new fittings costing $6 400 on credit from Nicholas. REQUIRED (b) Prepare the fixtures and fittings account for the year ended 31 December 2022. [2] (c) Calculate the depreciation on fixtures and fittings for the year ended 31 December 2022. [3] (d) Prepare journal entries to record depreciation on fixtures and fittings on 31 December 2022. Narration is not required. [2] (e) State the depreciation method adopted on motor vehicles. [1] Ray discovered that his bookkeeper had incorrectly depreciated motor vehicles at 25% per annum on cost for the year ended 31 December 2022. REQUIRED (f) Explain how this error affects the following: (i) profit for the year ended 31 December 2022; [2] (ii) net book value of motor vehicles on 31 December 2022. [2] [Total: 14]

A 1 ST GABRIEL (a) Office equipment account Date Particulars DR ($) CR ($) Bal ($) 2021 Aug 2 Capital 2 000 2 000 DR 2022 Mar 24 Trade payable,  IPM 50 000 52 000 DR Mar 26 Cash at bank 3 500 55 500 DR Aug 1 Balance b/d 55 500 DR (b) Depreciation on: New motor vehicle = 9/12 X 10%(80 000) = $6 000 Old motor vehicle = 10%(240 000 – 75 000) = $16 500 Total depreciation on motor vehicle = $22 500 (c) Depreciation on: New motor vehicle = 9/12 X 10%(80 000) = $6 000 Old motor vehicle = 10%(240 000) = $24 000 Total depreciation on motor vehicle = $30 000 Profit will decrease by ($30 000 - $22 500) = $7 500 (d) Due to matching theory, depreciation is provided so as to match the expense of the non-current assets to the income generated by the asset in the same period

A 2 PRESBYTERIAN HS a: Matching theory requires the expense incurred in the current year to be matched against the revenue earned in the current year to calculate profit or loss for the current year [1]. Depreciation is the expense incurred in using the non-current asset in the current year [1]. b: Fixtures and Fittings Account Date Particulars Dr ($) Cr ($) Bal. ($) 2022 Jan 1 Balance b/d [1] 24 800 Dr Oct 1 Trade payable – Nicholas [1] 6 400 31 200 Dr 2023 Jan 1 Balance b/d 31 200 Dr c: Reducing balance method [1] d: Old : 20% X 24 800 X 1 year = $4 960 [1] New: 20% X 6400 X 3/12 year =$ 320 [1] Total depreciation $5 280 [1] e: Journal Date Particulars Dr ($) Cr ($) 2022 Dec 31 Depreciation of fixtures and fittings [1] Accumulated depreciation of fixtures and fittings [1] 5 280 5 280 f: Depreciation of motor vehicles using reducing balance method = 25% X [84000-12000] = $18 000 Depreciation of motor vehicles using straight line method = 25% X 84 000 = $21 000 Depreciation expense is overstated by $3 000 (i) Profit will be understated by $3 000 [1] (ii) Net book value of motor vehicles will be understated by $3 000 [1]