Cambridge IGCSE and O Level Accounting

Coursebook answers
Chapter 12
Answers to test yourself questions

Test yourself 12.1

1 Depreciation is an estimate of the loss in value of a non-current asset over its expected working
life.
2 Depreciation ensures that the cost of the non-current asset is spread over the years which
benefit from the use of that asset. This annual charge for depreciation means that the cost of
the asset is matched against the revenue of the business it helped to earn each year.
3 The four main causes of depreciation are physical deterioration, economic reasons, passage of
time and depletion.

Test yourself 12.2

1 The straight line method of depreciation charges the same amount of depreciation each year.
2 The reducing balance method of depreciation uses the same percentage rate each year, but it
is calculated on the net book value (the cost less the deprecation previously written off), so the
amount of depreciation each year reduces.
3 The revaluation method of depreciation is used where it is not practical, or it is difficult, to keep
detailed records of certain types of non-current assets.
1
Test yourself 12.3
1 a The total amount of depreciation up to 30 June 20–6 was 19 600.
b The net book value of the fixtures on 30 June 20–7 was 3 240.
2 The asset account shows the cost of the asset and the provision for depreciation account shows
the total depreciation written off. These must be considered together in order to see the net
book value of the asset.

Test yourself 12.4

1 Depreciation is a non-monetary expense because no money is paid or received. It is a loss in
value of a non-current asset not a reduction in the amount of money a business has.
2 The provision for depreciation of 16 000 represents the total deprecation written off up to the
end of 30 June 20–5. This will not appear in the income statement as it is not an expense for
the year ended 30 June 20–6. It will not appear as a figure in its own right in the statement of
financial position at 30 June 20–6: it is included in the accumulated depreciation to the date
of the statement which is the 16 000 at the start of the year plus the depreciation for the year
of 3 600.

Answers to exam-style questions

1 A
2 A
3 B

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Cambridge IGCSE and O Level Accounting

4 a
Elsa
Office equipment account
Date Details Fo. $ Date Details Fo. $
20–4 20–5
Apl 1 Balance b/d 2 500 Mar 31 Balance c/d 4 600
Aug 31 Bank/cash 1 200
Dec 1 Bank/cash 5 900 5 555
4 600 4 600
20–5
Apl 1 Balance b/d 4 600

Provision for depreciation of office equipment account

Date Details Fo. $ Date Details Fo. $
20–5 20–4
Mar 31 Balance c/d 1 450 Apl 1 Balance b/d 750
20–5
Mar 31 Income statement
555 5 (500 + 140 + 60) 5 700
1 450 1 450
20–5
2
Apl 1 Balance b/d 1 450

b
Elsa
Extract from Income statement for the year ended 31 March 20–5
Expenses $
Depreciation – office equipment 700

c
Elsa
Extract from Statement of financial position at 31 March 20–5
Non-current assets $ $ $
Cost Accumulated Net book
deprecation value
Office equipment 4 600 1 450 3 150

5 a Capital expenditure: premises, legal costs, motor vehicle, delivery costs

Revenue expenditure: fuel, insurance
b 10 000 × 20% × 2 years = 4 000
c i Debit disposal of motor vehicle account 10 000, credit motor vehicle account 10 000
ii Debit provision for depreciation of motor vehicle account 4 000, credit disposal of motor
vehicle account 4 000
iii Debit cash 5 600, credit disposal of motor vehicle account 5 600

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Cambridge IGCSE and O Level Accounting

6 a
Tebogo
Income statement for the year ended 31 May 20–1
$ $ $
Fees received (37 130 + 1030) 38 160
Add Rent receivable (2 300 − 200 − 300) 1 800
Profit on disposal of office equipment
   ((2 200 + 1 560) − 3 650) 66 110
40 070
Less Office expenses 9 435
Rates 2 125
Wages (19 500 − 180 + 210) 19 530
Depreciation office equipment
  (4 200 × 20% × 9/12) 6 6630 31 720
Profit for the year 68 350 

b
Tebogo
Capital account
Date Details Fo. $ Date Details Fo. $
20–1 20–0
Mar 31 Drawings 9 000 Jun 1 Balance b/d 82 000
Balance c/d 81 350 20–1 3

68 350 May 31 Profit 68 350

90 350 90 350
20–1
Jun 1 Balance b/d 81 350

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