Non-Current Assets Pei Hwa (Collated)

PEI HWA SECONDARY SCHOOL Principles of Accounts Secondary Four Name: ____________________________ ( ) Date:___________ Class: __________ Teaching Group Name: ______________________ __________________________________________________________________________ Question 1 (10 Marks) Jermaine Tools bought two pieces of equipment on 1 January 2020 for $50 000 each by cheque. The following accumulated depreciation of equipment account relates to these two pieces of equipment. The financial year ends on 31 December. Accumulated depreciation of equipment account Date Particulars Debit Credit Balance 2020 $ $ $ Dec 31 Depreciation of equipment 15 000 15 000 Cr 2021 Jan 1 Balance b/d 15 000 Cr Dec 31 Depreciation of equipment 12 750 27 750 Cr 2022 Jan 1 Balance b/d 27 750 Cr REQUIRED (a) State one cause of depreciation. [1] (b) State the method used by Jermaine Tools to depreciate its equipment. [1] (c) Calculate the net book value of the equipment as at 31 December 2022. [3] On 1 February 2022, the business purchased a new equipment on credit from JL Industrial. The following relates to the new equipment purchased. $ Purchase price of equipment 40 000 Installation cost of equipment 5 250 Delivery fee for transportation of equipment 1 720 Utilities to operate the equipment 650 Salary of equipment operator 3 500 REQUIRED (d) Explain the meaning of capital expenditure. [2] (e) Calculate the cost of the equipment purchased on 1 February 2022. [3] [Total: 10 Marks] Paya Lebar Methodist Girls School 2023 4N Prelim Non-Current Assets Quiz 2 10

SOLUTIONS Question 1 PAYA LEBAR METHODIST GS Marks (a) Wear and tear/obsolesence/usage/legal limits 1 any one (b) Reducing balance method 1 (c) Net book value = 50000x2 [1] - (15000[1]+12750[1]) 3 =$72250 (d) Capital expenditure is 2 - Cost to buy [1] and bring non-current assets to their intended use [1]; or - Costs to enhance non-current assets [1]; or - Provide benefits for more than 1 year [1]. Any two points (e) Cost of equipment = $40000[1] + $5250[1] +$1720[1] 3 '=$46970

PEI HWA SECONDARY SCHOOL Principles of Accounts Secondary Four Name: ____________________________ ( ) Date:___________ Class: __________ Teaching Group Name: ______________________ __________________________________________________________________________ Question 1 (16 Marks) On 1 April 2023, Dan Ser Transport Services purchased a coach on credit from Hung Enterprise at a list price of $80 000 and was given a trade discount of 10%. On 18 May 2023, Dan Ser Transport Services made the following payments by bank transfers. $ (i) Painting of business name on the coach 320 (ii) Annual motor insurance 640 (iii) Annual road tax 450 (iv) Cost of installing seat belts in the coach 230 REQUIRED (a) Identify if the items marked (i) to (iv) are capital expenditure or revenue expenditure. [4] (b) Prepare journal entries to record the transactions on 1 April 2023 and 18 May 2023. Narrations are not required. [6] (c) Explain why non-current assets need to be depreciated with the support of an accounting theory. [2] (d) Explain how a business should decide which depreciation method to use for each type of non-current asset. [2] (e) Name and explain the accounting theory which requires the same depreciation method to be used to depreciate the non-current asset over different financial periods. [2] [Total: 16] Adapted from East Spring 2021 4N Prelim Non-Current Assets Quiz 1 20

Question 2 (4 marks) During the year ended 30 April 2023, the business purchased two tables for office use at $3 000 each. Delivery and installation expenses amounted to a total of $500. The business depreciates its fixtures and fittings at 10% per annum using the straight-line method. REQUIRED (a) Prepare the journal entries to record the depreciation expense for the year ended 30 April 2023. A narration is not required. [2] (b) State two causes of depreciation [2] [Total: 4] Adapted from Damai 2021 4N Prelim

SOLUTIONS Question 1 (a) (i) Capital, (ii) Revenue, (iii) Revenue, (iv) Capital (b) Journal Date Particulars Dr Cr 2023 $ $ Apr 1 Motor vehicles (90% X 80000) [1] 72 000 Trade payable Hung Enterprise [1] 72 000 May 18 Motor vehicles [1] → Painting 320 Cash at bank 320 May 18 Vehicle expenses / Insurance [1] 640 Cash at bank 640 May 18 Vehicle expenses / Road tax expense [1] 450 Cash at bank 450 May 18 Motor vehicles [1] → Installation of seat belts 230 Cash at bank 230 [6] (c) Non-current assets provide benefits over more than one accounting period, therefore their costs should be allocated as expenses over their useful lives to calculate profit fairly for each period. [1] This is to comply with the matching theory which states that the income earned should be matched with the expenses incurred in the same period to calculate profit for that period. [1] Or Non-current assets provide benefits over more than one accounting period and depreciation decreases the net book values of the non-current assets systematically over their useful lives to show that the non-current assets are losing their benefits over the periods of use. [1] This is to comply with the prudence theory which states that the accounting treatment chosen should be the one that least overstate profits and assets and least understate losses and liabilities. [1] (d) The depreciation method chosen should reflect the pattern of usage of the benefits from the non-current assets by the business. [1] If the benefits are consumed evenly over the

non-current assets’ useful lives, the straight-line method is more suitable, If more or better quality benefits are used each year in the earlier years of the non-current assets’ useful lives, the reducing-balance method is more suitable. A suitable method will result in a fairer matching of expenses against income to calculate profit for each period. [1] (e) The accounting theory is consistency theory. [1] It states that once an accounting method is chosen, this method should be applied to all future accounting periods to enable meaningful comparison. [1] Question 2 a) Journal Date Particulars Debit Credit 2023 Apr 30 Depreciation - fixtures and fittings [(3000x2)+500]x10% 650 Accumulated depreciation - fixtures and fittings [2] 650 (b) Any 2 of the following: Wear and Tear Usage Obsolescence Legal Limits

PEI HWA SECONDARY SCHOOL PRINCIPLES OF ACCOUNTS Name: ( ) Class: Date: Topic: Non-Current Assets #7 Question 1 (Bartley 2023 4N Prelim) On 1 January 2021, Lai Huat provided the following information from his books. $ Machinery 500 000 Accumulated depreciation of machinery 100 000 The accountant depreciates all machinery at 10% per annum using the reducing-balance method. On 1 October 2022, Lai Huat purchased a new machine costing $200 000. It is the business’ policy to record a full year worth of depreciation in the year of purchase. REQUIRED (a) Calculate the depreciation of machinery for th