F3 Multiple Choice Question

Q.1 A company’s plant and machinery ledger account for the year ended 30 September 2002 was as follows: Plant and Machinery - at cost 2001 $ 2002 $ 1 October Balance

381,200 1 June Disposal account – cost of asset sold 36,000

1 December Cash – addition 18,000 30 September Balance 399,200

363,200 399,200

The company’s policy is to charge depreciation at 20% per year on the straight line basis, with proportionate depreciation in years of purchase and sale. What is the depreciation charge for the year ended 30 September 2002? $74,440 $84,040 $72,640 $76,840 Q.2 All of the following is reasons for providing for depreciation of fixed assets EXCEPT: Upward movement in the value of assets Wear and Tear Depletion Obsolescence Q.3 A machine was purchased on 1 January 2007 for £11,000. It is to be depreciated at 10% reducing balance. What would be the net book value of the asset as at 31 December 2009? £8190 £8019 £8090 £8009 Q.4 A firm bought a machine for £50,000 on 1 January 2003. It was expected to last for 5 years. It was depreciated using the straight line method on a monthly basis. There is no

residual value of the machine. The machine is sold for £8,000 on 30 June 2006. What will be the required entry to record the transaction in the profit and loss account? Dr. Machinery Disposal Account £15,000, Cr. Profit & Loss Account £15,000 Dr. Profit & Loss Account £7,000, Cr. Machinery Disposal Account £7,000 Dr. Profit & Loss Account £15,000, Cr. Machinery Disposal Account £15,000 Q.5 An equipment was purchased on 1 January 2006 for £20,000 . It is to be depreciated at 20% using reducing balance method. What would be the net book value of the asset as at 31 December 2007? £12,000 £12,800 £13,600 £14,400 Q.6 There is a net increase of £400,000 in net fixed assets over the last year. Other details are as follows: Opening Balance of Net Fixed Assets £4,550,000 Closing balance of Net Fixed Assets £4,950,000 Additional assets purchased £1,000,000 Assets disposed off £50,000 at book value What was the firm’s depreciation expense over the period? £500,000 £550,000 £650,000 £1,350,000 Q.7 All of the following describe depreciation EXCEPT: It is a process of valuating of fixed assets It is a fund created for replacement of fixed and current assets It is a process of spreading cost of fixed assets over the working life of the asset Cash expense that provides a source of free cash flow to purchase more fixed assets Q.8 Which of the following is not depreciated?

Buildings Land Machines Office Furniture Q.9 How is straight line depreciation computed? Spread the acquisition price of the asset over 10 years and claim the same depreciation each year Take the acquisition price of the asset in the year of purchase of the asset Spread the acquisition price less salvage value of the asset over the useful life of the asset and claim the same depreciation each year Spread the acquisition price plus salvage value of the asset over the working life of the asset and claim the same depreciation each year Q.10 Which method of depreciation also takes into account interest on capital on capital expended? Annuity method Sum of digits method Reducing balance method Straight line method