CSS Accountancy & Auditing Depreciation of Plant, Property & Equipment

Adam’s Learning Centre, Lahore

CSS Accounting & Auditing
Topic Vise Past Papers (Unsolved)

Depreciation of Property, Plant & Equipment

Q. 1 (CSS – 2001, Paper # 1, Q. # 2) (20 Marks)

(a) What is the journal entry for treatment of surplus arising out of revaluation of fixed assets?
(b) At where in the balance sheet of a company surplus arising out of revaluation of fixed assets is to
be disclosed?
(c) What are the legal restrictions on disposal of surplus arising out of revaluation of fixed assets?
(d) What is the purpose to which the surplus arising out of revaluation of fixed assets can be applied?
(e) What discloses are required in the financial statements consequent upon revaluation of assets?
(i) In the first balance sheet after the revaluation?
(ii) In the balance sheets subsequent to the first balance sheet after revaluation.
(f) What is the value of revalued fixed assets for depreciation purposes?

Q. 2 (CSS – 2002, Paper # 1, Q. # 1) (20 Marks)

Explain concept of depreciation. Shall out its implication on Profit and Loss Account and Balance Sheet. Identify
four ways of depreciating fixed assets Illustrate your answer.

Q. 3 (CSS – 2003, Paper # 1, Q. # 3) (20 Marks)

Peshawar Manufacturing Company was established in June, 1999 to manufacture a single product using a
machine costing Rs.1,000,000. The machine is expected to fast for four years and then have a scrap value of
Rs.130,000. The machine will produce a similar number of goods each year and annual profit before
depreciation is expected to be in the region of Rs.500,000. The Finance Manager has suggested that the
machine should be depreciated using either the "Straight -Line Method" or the "Reducing Balance Method".
If the latter method is used, it is estimated that depreciation rate of 40% would be appropriate.
Required:
(1) Calculate annual depreciation charge and net book value of the machine at the end of 2000, 2001 and 2002
using:
(a) Straight -Line Method.
(b) Reducing Balance Method.
(2) Offer your comments on the use and implication of these two methods for the years 2000 to 2002.
(3) Advise management as to which method should be more appropriate.

Q. 4 (CSS – 2005, Paper # 1, Q. # 3) (20 Marks)

Best manufacturing purchased molding machine for Rs. 3,00,000 on 1st January 2000. It costs Rs. 6000 on erection
of the machine. On 1st July in the same year an additional machinery costing Rs. 1,50,000 was acquired. On 1st
January 2002, the machine purchased on 1st January 2000 was disposed off at a price of Rs. 75,000.
(a) Depreciation was provided for annually on 31st December @ 10% per annum on the cost of the machine. In
the year 2002, however, the following changes were introduced:
(b) The existing method of depreciation was replaced with written down value method.
(c) The rate of depreciation was increased from 10% to 15%.
Required: Machine account as it would appear at 31st December each year from year 2000 to 2004.

Q. 5 (CSS – 2006, Paper # 1, Q. # 5) (25 Marks)

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CSS Accountancy & Auditing Depreciation of Plant, Property & Equipment

Explain various types of depreciation methods relating to:

(a) Fixed assets
(b) Wasting assets
Illustrate your answer properly in respect of how various depreciation methods are used.

Q. 6 (CSS – 2011, Paper # 1, Section – B, Q. # 9) (18 Marks)

A tractor which cost Rs. 30,000 had an estimated useful life of 5 years and an estimated salvage value of Rs.
10,000. Straight-line depreciation was used. Give the entry (in general journal form) required by each of the
following alternative assumptions:
(a) The tractor was sold for cash of Rs. 19,500 after 2 years’ use.
(b) The tractor was traded in after 3 years on another tractor with a fair market value of Rs. 37,000. Trade-in
allowance was Rs. 21,000. (Recorded any implied gain or loss.)
(c) The tractor was scrapped after 7 years’ use. Since scrap dealers were unwilling to pay anything for the tractor,
it was given to a scrap dealer for his services in removing it.

Q. 7 (CSS – 2012, Paper # 1, Section – B, Q. # 9) (18 Marks)

The non-current asset section of Aadil & Co., at December 31, 2005 is as under:
Land Rs. 1,000,000
Office equipment Rs. 5,000,000
Less: accumulated 250,000 4,750,000
depreciation
Machinery Rs. 600,000
Less accumulated
depreciation 120,000 480,000
Total non-current asset 6,230,000
OTHER INFORMATION
 All assets were purchased on January 2, 2004
 The firm depreciates all assets on a straight line basis with no residual value and with the following lives:
Office equipment 40 years
Machinery 10 years
The following transactions occurred during 2006:
Apr. 01. A new additional equipment was purchased for Rs.1,000,000 and machinery at a cost of Rs.50,000. All items
were paid for in cash.
Jul. 15. Repairs of Rs. 5,000 were made for cash on machinery.
Sep. 30. Machinery with a cost of Rs. 100,000 and accumulated depreciation of Rs. 20,000 (as of 31 st December,
2005) was sold for Rs. 82,000 cash.
Dec. 31. Machinery with a cost of Rs. 50,000 and accumulated depreciation of Rs. 10,000 (as of 31st December,
2005) was traded in for new machinery. The firm received a trade-in allowance of Rs.32,000. The list price of the
new machinery is Rs. 85,000.
REQUIRED:
Make all the required Journal entries.
Show all necessary computations.

Q. 8 (CSS – 2013, Paper # 1, Section – B, Q. # 8) (20 Marks)

Define and illustrate the following:

a. Depreciation on Replacement cost
b. Revaluation of assets and legal provisions governing this.

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CSS Accountancy & Auditing Depreciation of Plant, Property & Equipment
c. Deferred Taxation
d. Cash generation statement

Q. 9 (CSS – 2014, Paper # 1, Section – B, Q. # 6) (20 Marks)

Fast Ltd purchased machinery on January 1, 2011 and its book value was Rs.40500 on January 1, 2013. The
company had been writing off depreciation at 10% per annum on diminishing balance method. The company
disposed of machinery for Rs.8400 on July 1, 2013 and book value of such machinery was Rs.12150 on January 1,
2011. It was decided that during 2013 sufficient depreciation should be written off to make up depreciation at 10%
on original cost basis. Books are closed on December 31 each year. Pass necessary journal entries and prepare
machinery account.

Q. 10 (CSS – 2016, Paper # 1, Section – A, Q. # 4 (a) (10 Marks)

On January 1, 2015, Hydri Construction acquired a small excavator for Rs.85,000. This device had a 4-year service
life. It is expected that the equipment will be sold for Rs.10,000 salvage value at the end of 4 years. The company
uses the double-declining balance depreciation method.
(a) Prepare a schedule showing annual depreciation expense, accumulated depreciation and related calculations
for each subsequent year.
(b) Show how the asset and related accumulated depreciation would appear on a balance sheet at December 31,
2015.
(c) Prepare journal entries to record the asset's acquisition, annual depreciation for each year, and the asset's
eventual sale for Rs.10,000.

Q. 11 (CSS – 2017, Paper # 1, Section – A, Q. # 3 (b) (10 Marks)

Company installs a computerized manufacturing machine in its factory at the beginning of the year at
a cost of $42,300. The machine’s useful life is estimated at 10 years, or 363,000 units of product, with a
$6,000 salvage value. During its second year, the machine produces 35,000 units of product.
Required: Determine the machine’s second-year depreciation under the straight-line method.

Q. 12 (CSS – 2018, Paper # 1, Part – II, Section – A, Q. # 4 (a) (10 Marks)

The XYZ Co. purchased a large machine 5 years ago at a total cost of Rs. 400,000. The accumulated
depreciation on this machine is Rs. 290,000. The corporation sold the machine at Rs.10, 000 gain.

Required: Calculate the amount would be reported as cash flow from this sale.

Q. 13 (CSS – 2018, Paper # 1, Part – II, Section – A, Q. # 4 (b) (10

Marks)

On April 1, 1993 Ayesha Industries purchased new equipment at a cost of Rs. 325000. Useful life of this
equipment was estimated at 5 years, with a residual value of Rs. 25000. For tax purposes, however, this
equipment is classified as “3- year property”.
Required: Compute the annual depreciation expense for each year until this equipment becomes fully depreciated
under each depreciation methods listed below (Because you will record depreciation for only a fraction of a year
in 1993, depreciation will extend through in all methods except MACRS) and show supporting computations.
1. Straight -line, with depreciation for fractional years rounded to the nearest whole month.
2. 20%-declining-balance method, with the half-year convention. Limit depreciation in1998 to an amount
which reduces the un-depreciated cost to the estimated residual value.
3. Sum-of-the-years’-digits, with the half-year convention
4. MACRS accelerated rates for “3-year property”

Q. 14 (CSS – 2019, Paper # 1, Part – II, Section – I, Q. # 4 (20 Marks)

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CSS Accountancy & Auditing Depreciation of Plant, Property & Equipment

(a) Burno Co. purchased equipment on Jan. 1, 2005 at a total invoice cost of Rs.280,000, additional costs of
Rs.5,000 for freight and Rs.25,000 for installation were incurred. The equipment has an estimated salvage
value of Rs.10,000 and an estimated useful life of five years.
What is the amount of accumulated depreciation at Dec. 31, 2006 if the straight-line method is used? (8)

(b) A plant asset cost Rs.27,000 when it was purchased on Jan. 1, 2008. It was depreciated by the straight-line
method based on a 9-year life with no salvage value. On June 30, 2008, the asset was discarded with no cash
proceeds. What gain or loss should be recognized on the retirement? Pass the entry. (6)

(c) On June 30, 2010 B. Co. sells office furniture for Rs.60,000 cash. The office furniture originally cost
Rs.150,000 when purchased on Jan 1, 2005. Depreciation is recorded by the straight-line method over 10
years with a Salvage value of Rs.15,000. (6)

Q. 15 (CSS – 2021, Paper # 1, Part – II, Section – I, Q. # 4 (20 Marks)

XYZ purchased a delivery truck for the distribution of its finished products for Rs. 65,000 on 1st January,
2013. The expected useful life of that truck was five years and a salvage value of Rs. 5,000.
Required:
Calculate the following:
(A) The annual depreciation expense by applying sum of the year digit method. (10)
(B) Pass journal entries and prepare depreciation schedule. Also state the assumptions
of this method. (10)

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