Depreciation

MyStudyBro - Revision Exercise Tool
This Revision Handout includes the Questions and Answers of a total of 9 exercises!
Chapters:
Depreciation - Unit 1 (Pearson Edexcel)
Page 1 (WAC01 or WAC11) 2018 Winter
Page 4 (WAC01 or WAC11) 2018 Winter - Answer
Page 10 (WAC01 or WAC11) 2017 Autumn
Page 13 (WAC01 or WAC11) 2017 Autumn - Answer
Page 17 (WAC01 or WAC11) 2016 Summer
Page 19 (WAC01 or WAC11) 2016 Summer - Answer
Page 22 (WAC01 or WAC11) 2016 Autumn
Page 23 (WAC01 or WAC11) 2016 Autumn - Answer
Accruals and Prepayments

Also Includes:
Accruals and Prepayments

Winter 2018 www.mystudybro.com Accounting Unit 1
Past Paper This resource was created and owned by Pearson Edexcel WAC01 or WAC11
5 Fast Response is a business delivering goods to customers. The following information

is available:
(1) Extract from the Statement of Financial Position at 31 December 2016.
Non-current assets
Cost Accumulated Carrying
depreciation value
£ £ £
Delivery vehicles 31 000 4 600 26 400
(2) History of delivery vehicle purchases and sales.
1 January 2016 Purchased vehicle A £15 000
1 July 2016 Purchased vehicle B £16 000
1 April 2017 Purchased vehicle C £18 000
1 July 2017 Purchased vehicle D £20 000
1 July 2017 Sold vehicle A £11 000
(3) Fast Response has the following depreciation policy:
• delivery vehicles are depreciated at the rate of 20% per annum using the
straight line method
• depreciation is charged on delivery vehicle purchases and sales on a pro rata
basis to the months of ownership
• all sales of delivery vehicles are recorded through a disposal account.
(4) All purchases and sales of delivery vehicles were by cheque.
Required
(a) Complete the table in your Question Paper showing the depreciation charged on
each delivery vehicle for the year ended 31 December 2017.
(4)
(b) Prepare the Journal entries to record the sale of delivery vehicle A on 1 July 2017.
(4)
(c) Prepare, for the year ending 31 December 2017, the:
(i) Delivery Vehicles Account
(4)
(ii) Delivery Vehicles Disposal Account.
(4)
(d) Explain the difference between the accounting concepts of going concern and
consistency when applied to the depreciation of non-current assets.
(4)
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(e) Identify whether each of the following costs is a capital expenditure or a

revenue expenditure for a new delivery vehicle purchased.
(1) Delivery cost of vehicle
(2) Road licence
(3) Insurance
(4) Sign writing of business name on delivery vehicle
(4)
(f ) Evaluate the suitability of the straight line method for depreciating delivery
vehicles.
(6)
(Total for Question 5 = 30 marks)
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MSB - Page 2 Turn over
If you answer Question 5 put a cross in the box .

Source material for Question 5 is on pages 10 and 11 of the source booklet.
5 (a) Complete the table showing the depreciation charged on each delivery vehicle
for the year ended 31 December 2017.
(4)
Delivery Delivery Delivery Delivery Total

Year ended vehicle A vehicle B vehicle C vehicle D
£ £ £ £ £
31 December 2017
(b) Prepare the Journal entries to record the sale of delivery vehicle A on 1 July 2017.
(4)
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*P54343A02632*
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Past Paper (Mark Scheme) This resource was created and owned by Pearson Edexcel WAC01 or WAC11
An attempt at an evaluation is presented, using

financial and perhaps non-financial information, with a
decision.
Level 3 5-6 Accurate and thorough knowledge and understanding.

Application to the scenario is relevant and effective.
A coherent and logical chain of reasoning, showing
causes and effects is present.
Evaluation is balanced and wide ranging, using financial
and perhaps non-financial information and an
appropriate decision is made.
Question Answer Mark

Number
5 (a) AO2(4)
AO2 Four marks for calculating the
depreciation to be charged on each vehicle.
(4)
Year ended motor motor motor motor Total

vehicle A vehicle B vehicle C vehicle D
£ £ £ £ £
31 December 1 500 3 200 2 700 2 000 9 400
2017 (1) AO2 (1) AO2 (1) AO2 (1) AO2
MSB - Page 4

Number
5 (b) AO1(1), AO2(2), AO3(1)
AO1 One mark for appropriate narrative.
AO2 Two marks for journalising motor vehicle
and bank entries.
AO3 One mark for correct journalising and
value of provision for depreciation.
(4)
Journal
Dr Cr
£ £
Provision for depreciation- motor vehicle 4 500
Disposal 4 500 (1) AO3
Both
Disposal 15 000
Motor vehicle 15 000 (1) AO2
Both
Bank 11 000
Disposal 11 000 (1) AO2
Both
Sale of motor vehicle A on 1 July 2017 for £11 000 (1) AO1
MSB - Page 5

Number
5 (c)(i) AO2(4)
AO2 Four marks for posting to delivery
vehicle account.
(4)
Delivery Vehicles Account

Date Details £ Date Details £
2017 2017
1 Jan Balance b/d 31 000 (1) AO2 1 July Disposal 15 000 (1) AO2
1 April Bank 18 000
1 July Bank 20 000 (1) AO2 31 Dec Balance 54 000 of
c/d
69 000 69 000
2018
1 Jan Balance b/d 54 000 (1) AO2
On debit side

Number
5 (c)(ii) AO2(2), AO3(2)
AO2 Two marks for posting to delivery vehicle
account.
AO3 Two marks for calculating depreciation
to 1 July 2017 and correct insertion in
disposal account. Correct calculation of loss.
(4)
Disposal Account
Date Details £ Date Details £
2017 2017
1 July Motor vehicle 15 000 (1) 1 July Prov 4 500 (1of)
AO2 for AO3
Deprec
31 Profit on 500 (1of) Bank 11 000 (1)
Dec disposal/Income AO3 AO2
statement
______ ______
15 000 15 000
MSB - Page 6

Number
5 (d) AO2(4)
AO2 Four marks for explaining the difference
between the two accounting concepts.
Going concern
Assumes business life will continue for the
foreseeable future unless the contrary is known
All non-current assets to be depreciated over their
economic life
Consistency
Assumes same treatment in the accounts over
time e.g. using the same method of depreciation
Seeks to avoid distortion in the preparation of the
accounts
Candidates to distinguish a point for going concern

and a point for consistency. 2 x (2) AO2
(4)

Number
5 (e) AO1(4)
AO1 Four marks for identification of capital
expenditure or revenue expenditure.
 Motor vehicle delivery cost Capital expenditure (1) AO1
 Road licence Revenue expenditure (1) AO1
 Insurance Revenue expenditure (1) AO1
 Sign writing of business name Capital expenditure (1) AO1
(4)
MSB - Page 7
Question Indicative Content Mark

Number
5 (f) AO2 (1), AO3 (2), AO4 (3)
Potential positive arguments for straight line
Fast Response will obtain many years usage from each

motor vehicle. The usage will probably be of equal value
over the years. Therefore it seems appropriate to charge
equal depreciation to each year.
Potential negative points against straight line
As the motor vehicle becomes older it will require more

maintenance and repair therefore the total cost of
operating the motor vehicle in depreciation and repairs
will rise distorting profits later in the life of the
non-current asset.
Motor vehicles tend to lose a greater proportion of their
value in the early years. Therefore with the straight line
method the carrying value will be in excess of the true
market value.
It would be prudent to charge higher depreciation in the
early years.
Decision
Candidates may conclude that it is a suitable or not
suitable in the depreciation of motor vehicles. The
candidate’s decision should be supported by reference to
positive and negative points.
NOT
Simple to calculate
Easy to calculate
(6)
Level Mark Descriptor
0 A completely incorrect response.
Level 1 1-2 Isolated elements of knowledge and understanding
which are recall based.
Generic assertions may be present.
Weak or no relevant application to the scenario set.
Level 2 3-4 Elements of knowledge and understanding, which are
applied to the scenario.
Some analysis is present, with developed chains of
reasoning, showing causes and/or effects applied to the
scenario, although these may be incomplete or invalid.
MSB - Page 8

decision.


Number
6 (a) AO1 (4)
AO1: Four marks for recommending the
basis of apportionment and providing a
reason.
Rent and rates – Floor area (1) AO1 the expense

will be incurred in relation to the area occupied by
the respective departments. (1) AO1
Marketing expenses – Revenue (1) AO1 marketing
will raise awareness of the goods and services that
PC Sales and Repairs has to offer which should
increase the sales revenue of the respective
departments. (1) AO1 (4)

Number
6 (b) AO1 (5), AO2(12), AO3 (3)
AO1: Five marks for recording the figure
correctly from the data given.
A02: Twelve marks for calculating the figure
and then recording this correctly.
AO3: Three marks for calculating the correct
figure using two calculations and then
recording the figure correctly.
(20)
MSB - Page 9
Autumn 2017 www.mystudybro.com Accounting Unit 1
4 The Statement of Financial Position of Hoppe Electricals at 30 June 2016, showed the
following:
Accumulated
Non-current Asset Cost Carrying Value
Depreciation
£ £ £
Land and buildings 250 000 80 000 170 000
Motor vehicles 72 000 30 000 42 000
Loose tools 15 000 5 000 10 000
Total 337 000 115 000 222 000
(1) During the year ended 30 June 2017, the following non-current asset transactions
took place:
• An extension to the building costing £60 000 was completed and occupied.
• New motor vehicles were purchased at a cost of £23 000
• Existing motor vehicles with a cost of £25 000, were sold for their carrying
value of £5 000
• Additional loose tools were purchased for £6 000. Loose tools were valued on
30 June 2017 at £14 000
(2) Hoppe Electricals has the following depreciation policy:
• Land and buildings are depreciated at the rate of 10% per annum using the
straight line method.
• Motor vehicles are depreciated at the rate of 25% per annum using the
reducing balance method.
• Loose tools are depreciated using the revaluation method.
• A full year’s depreciation is charged on all non-current assets owned at the
end of the year.
Required
(a) State how the following accounting concepts apply to depreciation:
(i) going concern
(2)
(ii) consistency.
(2)
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(b) Calculate the depreciation to be charged for each type of non-current asset for
the year ended 30 June 2017:
(i) land and buildings
(2)
(ii) motor vehicles
(3)
(iii) loose tools.
(3)
(c) Complete the schedule of non-current assets in your Question Paper.
(12)
(d) Evaluate the depreciation policy of Hoppe Electricals for land and buildings.
(6)
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P50730A
(c) Complete the schedule of non-current assets.

(12)
Schedule of Non-current Assets at 30 June 2017
Land and
Motor vehicles Loose tools
buildings
£ £ £
Cost at 30 June 2016 250 000 72 000 15 000
Additions for year
Disposals for year
Total non-current asset cost
Less depreciation
Provision at 30 June 2016 80 000 30 000 5 000
Depreciation on non-current
asset disposals
Depreciation for the year
ended 30 June 2017
Total accumulated
depreciation
Carrying value at
30 June 2017
*P50730A02336*
23

Number
4 (a) (i) AO1 (2)
AO1: Two marks for stating how the
concepts apply to depreciation.
Going concern
It is assumed that the business will have perpetual
life (1) AO1 Therefore the cost of non-current
assets should be matched to each accounting
period over the useful life of the asset. (1) AO1
(2)

Number
4 (a) (ii) AO1 (2)
AO1: Two marks for stating how the
concepts apply to depreciation.
Consistency
Whichever method of depreciation and rate has
been chosen for a non-current asset it should be
consistently applied to the non-current assets’
useful life (1) AO1 to avoid distortion of profit.
(1) AO1
(2)

Number
4 (b) (i) AO2 (2)
AO2: Two marks for completing the
calculations.
Land and buildings
250 000 + 60 000 = 310 000 (1) AO2 x 10%

= 31 000 (1)of AO2
(2)
MSB - Page 13

Number
4 (b) (ii) AO2 (2), AO3 (1)
AO2: Two marks for completing the
calculations.
A03: One mark for adjusting the
calculations for disposals.
Motor vehicles
Carrying value after disposal 37 000 (1) AO3 +

23 000 = 60 000 (1) AO2 x 25% = 15 000 (1)of
AO2
OR
((42 000 – 5 000 (1) AO3) + 23 000 (1) AO2))

x 25% = 15 000 (1)of
(3)

Number
4 (b) (iii) AO2 (1), AO3 (2)
AO2: One mark for completing the
calculations.
A03: Two marks for adjusting the
calculations for disposals.
Loose tools
15 000 + 6 000 = 21 000 (1) AO2 – 14 000
= 7 000 (1) AO3 – 5000 = 2 000 (1) AO3
(3)
MSB - Page 14

Number
4 (c) AO1 (5), AO2 (7)
AO1: Five marks for inserting figures in the
table.
A02: Seven marks for applying provision for
depreciation correctly.
Schedule of Non-current Assets at 30 June 2017.

Land and Motor Loose
buildings vehicles tools
£ £ £
Cost at 30 June 250 000 72 000 15 000

2016
Additions for year 60 000 23 000 6 000
(1) AO1 (1) AO1 (1) AO2
Disposals for year ( - ) ( 25 000 ) ( - )
(1) AO2
Total non- 310 000 70 000 21 000
current asset
cost
Less
depreciation
Provision at 30 ( 80 000 ) ( 30 000 ) ( 5 000 )
June 2016
Depreciation on - 20 000 -
non-current asset (1) AO2
disposals
Depreciation for ( 31 000 ) ( 15 000 ) ( 2 000 )
the year ended 30 (1) of AO2 (2)(1)of (1)of
June 2017 AO2 AO2
Total (111 000) ( 25 000) ( 7 000)
accumulated
depreciation
Carrying value at 199 000 45 000 14 000
30 June 2017 (1)of AO1 (1)of AO1 (1)of
AO1
(12)
MSB - Page 15
Question Indicative Content Mark

Number
4 (d) AO2 (1), AO3 (2), AO4 (3)
Potential positive arguments for the policy

Buildings will require depreciation because they will
deteriorate.
Accruals/matching concepts are being applied.
Prudence concept has been applied.
Straight line method is the same depreciation each
year and does not distort profit.
Potential negative points for the policy

Land is not normally depreciated.
At 10% the rate is too high for matching/accruals
concept.
The book value may not be near to the market value.
NOT
Less time to calculate.
Less errors.
Decision
Candidates may decide that the application of 10%
straight line depreciation to land and buildings is
appropriate or not appropriate. Candidate’s decisions
must be supported by a rationale of key points in
arriving at that conclusion.
(6)
Level 1 1-2 Isolated elements of knowledge and understanding
which are recall based.
Level 2 3-4 Elements of knowledge and understanding, which are
applied to the scenario.
decision.
MSB - Page 16
Summer 2016 www.mystudybro.com Accounting Unit 1
4 The following is a schedule of non-current assets from the records of Jabir.
Non-current Balances at 1 May 2015 For the year ended 30 April

assets 2016
Cost Provision for Additions at Disposals at
depreciation cost cost
£ £ £ £
Land and
85 000 8 000 20 000 -
buildings
Computers 30 000 9 200 10 000 5 000
Fixtures and
9 500 4 300 1 500 -
fittings
The depreciation policy of Jabir is as follows:

• No depreciation is charged on land, which cost £35 000. Depreciation is charged
on buildings at the rate of 2% per annum using the straight line method.
• Computers are depreciated at the rate of 20% per annum using the straight
line method.
• Fixtures and fittings are depreciated at the rate of 10% per annum using the
• A full year’s depreciation is charged in the year of addition (purchase).
• A half year’s depreciation is charged in the year of disposal (sale).
10
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Additional information
(1) All non-current asset additions were paid for by cheque.
(2) All disposals were transferred to the Disposals Account.
(3) The computer disposed of in the year had been purchased on 1 January 2014.
Required
(a) Explain why Jabir needs to charge depreciation on his non-current assets.
(4)
(b) Calculate the depreciation to be charged on the computers for the year ended
30 April 2016.
(2)
(c) Prepare, for the year ended 30 April 2016, the:
(i) Computers Account
(5)
(ii) Computers – Provision for Depreciation Account.
(5)
(d) Complete in the question paper the extract from the Statement of Financial
Position at 30 April 2016 for the non-current assets.
(8)
Accumulated
Non-current assets Cost Carrying value
depreciation
£ £ £
Land and buildings
Computers
Fixtures and fittings
Total
(e) Evaluate Jabir’s depreciation policy for computers.

(6)
11
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Question Indicative content

Number
4 (a) AO1 (1), AO2 (2), AO3 (1)
A01: One mark for identifying that depreciation relates to age
and usage.
A02: Two marks for explaining the impact upon the income for
the period and non-current asset values in the financial position
statement.
A03: One mark for linking the need for depreciation to the
application of accounting concepts.
• Non-current assets generally fall in value with age and usage

(1)AO1
• The depreciation is a cost/expense of a period of time and
therefore should be charged against income for that
period/profits should not be overstated (1)AO2
• Because the non-current assets are generally falling in value this
should be reflected in the financial position statement
(1)AO2
• Charging depreciation complies with the going concern(1)AO3
• Charging depreciation complies with the accruals concepts.
(1)AO3
Max 4
Not
Prudence concept

Number
4 (b) AO2 (2)
A02: One mark for calculating the depreciation on existing non-
current assets and additions. One mark for calculating the
depreciation on disposals.
Cost 30 April 2015 £30 000 + Additions £10 000 = £40 000
- Disposals £5 000 = £35 000 x 20% = £7000 (1)AO2 +
Disposals £5 000 x 20%/2 £500 (1)AO2 = Total £7 500
MSB - Page 19

Number
4 (c) AO1 (4), AO2 (4), AO3 (2)
A01: Four marks for correctly recording the opening balances
and bringing down the balances to the next period.
A02: Four marks for correctly recording the transactions for the
year.
A03: Two marks for calculating the disposal sums and correctly
recording in the accounts.
Computer Account
£ £
2015 2015
1 May Balance b/d 30 000 (1)AO1 Disposal 5 000 (1)AO3
2016
Bank/cash 10 000 (1)AO2 30 April Balance c/d 35 000 (1)AO2
40 000 40 000
2016
1 May Balance b/d 35 000 (1of)AO1
Computer- Provision for Depreciation Account

£ £
2015 2015
Disposal(1)AO2 2 500 (1)AO3 1 May Balance b/d 9 200 (1)AO1
2016 2016
30 April Balance c/d 14 200 30 April Income statement 7 500(1of)AO2
16 700 16 700
1 May Balance b/d 14 200 (1of)AO1

Number
4(d) AO1(4), AO2 (4)
A01: Four marks for correctly recording or totalling figures in
the statement.
A02: Four marks for calculating and applying the correct figures
to the statement.
Extract
Non-current assets
Cost Accumulated Carrying
depreciation over
£ £ £
Land & buildings 105 000 (1)AO2 - 9 400 (1)AO2 = 95 600
Computers 35 000 (1)AO2 - 14 200(1of)AO1 = 20 800
Fixtures & fittings 11 000 (1)AO1 - 5 400 (1)AO2 = 5 600
151 000 (1of)AO1 29 000 122 000 (1of)AO1
MSB - Page 20

Number
4(e) AO2 (1), AO3 (2), AO4 (3)
A02: One mark for applying positive or negative aspects of
Jabir’s depreciation policy, drawing out key points.
A03: Two marks for interpreting and analysing possible
solutions to depreciating computers, using a developed chain of
reasoning.
A04: Three marks for evaluating the scenario counterbalancing
the arguments giving weight to a range of financial and non-
financial aspects to arrive at a logical conclusion.
Potential positive arguments for the business

• Depreciation is being charged and therefore the accounting
concepts are being complied with.
• The method will reflect the principle of equal usage equal
charge for each year.
• Does not distort profits.
Potential negative points for the business
• Computers depreciate quickly due to obsolescence and therefore
20% is a fairly low figure for the early years.
• In the early years the computer value in the financial position
statement will be overstated.
• A full year’s depreciation in the year of purchase would result in
high depreciation for non-current assets bought late in the year.
Not
Easier to calculate
Consistent method

Level 1 1-2 Isolated elements of knowledge and understanding which are
recall based.
Level 2 3-4 Elements of knowledge and understanding, which are applied
to the scenario.
An attempt at an evaluation is presented, using financial and
perhaps non-financial information, with a decision.
A coherent and logical chain of reasoning, showing causes
and effects is present.
Evaluation is balanced and wide ranging, using financial and
perhaps non-financial information and an appropriate
decision is made.
MSB - Page 21
6 Palak has reviewed his policy for the depreciation of computers. He has decided to
change from the straight line method to the reducing balance method. He provided
the following information:
(1) Purchased computers on 1 October 2013 at a cost of £25 000
(2) His policy for depreciating computers for the years ended 30 September 2014 and
30 September 2015 was to depreciate at the rate of 10% per annum using the
(3) His policy for depreciating computers for the year ended 30 September 2016
will be to depreciate at the rate of 20% per annum using the reducing balance
method.
(4) The difference due to the change in depreciation method on computers for the
years ended 30 September 2014 and 30 September 2015 will be charged to the
Statement of Profit or Loss and Other Comprehensive Income for the year ended
30 September 2016.
Required
(a) Explain the difference between capital expenditure and revenue expenditure.
(4)
(b) Explain how capital expenditure will be treated in the financial statements.
(4)
(c) Identify one accounting concept that:
(i) supports a change in the method of depreciation on computers
(1)
(ii) does not support a change in the method of depreciation on computers.
(1)
(d) Calculate the:
(i) difference due to the change in method of depreciation on computers for the
years ended 30 September 2014 and 30 September 2015
(6)
(ii) depreciation on computers for the year ended 30 September 2016.
(2)
(e) Prepare the Computers – Provision for Depreciation Account for the years ending
30 September 2014, 30 September 2015 and 30 September 2016.
(6)
(f ) Evaluate Palak’s decision to change the method for depreciating computers from
the straight line method to the reducing balance method.
(6)
TOTAL FOR SECTION B = 90 MARKS

TOTAL FOR PAPER = 200 MARKS
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recall based.
to the scenario.
decision is made.

Number
6(a) AO1 (4)
AO1: Four marks for correct explanations.
Capital expenditure is the acquisition of or enhancement of non-

current assets (1) which will provide a benefit to the business
for more than one year. (1)
Revenue expenditure is day to day expenditure (1) the benefit

of which will only be in the current year. (1)
(4)
MSB - Page 23

Number
6(b) AO1 (4)
AO1: Four marks for correct explanation.
A proportion of the non-current asset value (depreciation) (1)
will be charged to the Statement of Profits or Losses and Other
Comprehensive Income. (1)
The non-current asset will be recorded in the Statement of

Financial Position at original cost (1) less accumulated
depreciation (1) to give the carrying value which will be totalled
with the other assets.
(4)
Number
6(c) AO3 (2)
AO3: Two marks for analysing the scenario and
determining the concept.
(i) Prudence (1)
(ii) Consistency (1)

(2)

Number
6(d)(i) AO2 (5), AO3 (1)
A02: five marks for correct calculation.
AO3: One mark for analysing the difference.
(6)
Straight line Reducing balance

£ £
Cost 25 000 Cost 25 000
30 September 2014 2 500 (1) AO2 30 September 2014 5 000 (1) AO2
Carrying value 22 500 Carrying value 20 000
30 September 2015 2 500 (1) AO2 30 September 2015 4 000 (1) AO2
Carrying value 20 000 Carrying value 16 000
Difference
Reducing balance 5 000 + 4 000 = 9 000
Straight line 2 500 + 2 500 = 5 000
Difference 4 000 (2/1 of) AO3
OR carrying value
Reducing balance 16 000
Straight line 20 000
Difference 4 000 (2/1 of) AO3
MSB - Page 24

Number
6(d) (ii) AO2 (2)
A02: Two marks for correct calculation.
30 September 2016 16 000 (1 of) x 20% = 3 200 (1) AO2

(2)

Number
6(e) AO2 (5), AO3 (1)
A02: Five marks for correctly posting figures and
labelling.
AO3: One mark for correctly posting the annual
depreciation and difference.
Computers - Provision for Depreciation Account

£ £
2014 2014
30 Sept Balance c/d 2 500 30 Sept Income Statement 2 500 (1) AO2
2 500 2 500
2015 2015
30 Sept Balance c/d 5 000 1 Oct Balance b/d 2 500 (1) AO2
____ 30 Sept Income statement 2 500 (1) AO2
5 000 5 000
2016 2016
30 Sept Balance c/d 12 200 I Oct Balance b/d 5 000 (1 of) AO2
____ 30 Sept Income Statement 7 200 (1 of) AO3
12 200 (3 200 +4 000) 12 200
1 Oct Balance b/d 12 200 (1 of) AO2
(6)
MSB - Page 25
Question Indicative content Mark

Number
6(f) AO2 (1), AO3 (2), AO4 (3)
Potential arguments for keeping straight line

• Simple to calculate, easier to use. The calculation is a
straight percentage of cost
• Consistent to retain straight line method. Applying the
consistency concept it would be better to retain the
current method
• Equal usage in each year. The straight line concept is valid
on the grounds that the usage of the non-current asset
will probably be the same each year. Therefore an equal
amount of depreciation should be charged against income
• Time and skill required to restate previous year’s figures.
Re-calibrating the overhead calculations will take time and
accounting skills.
Potential arguments against keeping straight line

• Computers depreciate by more than 10% per annum.
Computers tend to lose considerable value in the early
years, a 10% charge will understate the depreciation
incurred
• Carrying value will be higher than market value for many
years. The non-current asset will therefore be overvalue
in the financial position statement
• Applying the concept of prudence, the change in method
is advised. The change would ensure that depreciation
charged would be appropriate to the value of the non-
current asset.
Conclusion
• Candidates may argue for or against retaining straight
line. Candidate’s decision should be supported by key
arguments in arriving at that decision.
(6)
MSB - Page 26

recall based.
to the scenario.
decision is made.
Pearson Education Limited. Registered company number 872828

with its registered office at 80 Strand, London WC2R 0RL
MSB - Page 27
SOURCE MATERIAL FOR USE WITH QUESTION 3

3 Miguel owns a construction business which hires equipment to customers. The
following balances were recorded in his books on 31 December 2014:
£
Income from hire of equipment to customers 573 000
Wages and salaries 185 000
Rent and rates 30 000
Administration expenses 17 500
Marketing expenses 42 750
Delivery expenses 61 200
Servicing and repair of equipment 89 750
Bad debts 11 000
Fixtures and fittings at cost 110 000
Fixtures and fittings provision for depreciation 27 000
Equipment at cost 285 000
Equipment provision for depreciation 125 000
Non-current asset disposal account 4 500 Cr
Additional information 31 December 2014
1. Wages and salaries were prepaid £1 300.
2. Servicing and repairs of equipment £3 200 were outstanding.
3. Depreciation is charged as follows:
• fixtures and fittings 15% on cost
• equipment at 25% by the diminishing balance method.
Required:
(a) Prepare the Statement of Comprehensive Income for the year ended
31 December 2014.
(11)
(b) (i) Distinguish between capital expenditure and revenue expenditure.
(4)
(ii) State, giving your reasons, whether each of the following is capital
expenditure or revenue expenditure:
• servicing and repair of equipment
• purchase of new equipment
• purchase of second hand equipment.
(6)
6
P45047A
MSB - Page 28
Miguel owns a Mobile Crane which is a piece of equipment. The details of the Mobile
Crane are as follows:
1 January 2012 Purchased Mobile Crane £60 000

1 January 2012 Delivery of Mobile Crane £4 000
30 June 2014 Sold Mobile Crane £35 000
Miguel has the depreciation policy, that non-current assets sold in a year will be
depreciated pro-rata to the months of ownership.
(c) Prepare for the years ended 31 December 2012, 31 December 2013 and
31 December 2014 the:
(i) Mobile Crane Account
(ii) Mobile Crane Provision for Depreciation Account.
(11)
Miguel has purchased a new piece of equipment, the Trench Digger. The following
information is available:
£
Depreciation for the year 21 000 per annum
Operator wages 100 per day hired
Delivery costs to site 200 per contract
Servicing and repair 3 000 per annum
Overheads 15 000 per annum
Profit mark-up 20%

The Trench Digger will be hired to customers at a rate per day. Miguel estimates that the
Trench Digger will be used on 80 different contracts per year and hired to customers for a
total of 200 days per year.
(d) Calculate the:
(i) total cost per year of operating the Trench Digger
(ii) rate per day charged to customers, including the profit mark-up of 20%.
(12)
Miguel stated that “If we allow the correct depreciation on a piece of equipment, this will
always ensure that we have the cash for a replacement when it is worn out”.
(e) Evaluate this statement.
(8)
Answer space for question 3 is on pages 15 to 23 of the question paper.
7
P45047A
3 (a) Miguel
Statement of Comprehensive Income for the year ended 31 December 2014
£ £
Hire of equipment 573 000 √
Profit on disposal 4 500 √
577 500
Less expenses:
Wages and salaries 185 000 – 1 300 183 700 √
Rent and rates 30 000 √
Administration expenses 17 500 √
Marketing expenses 42 750 √
Delivery expenses 61 200 √
Servicing and repairs 89 750 + 3 200 92 950 √
Bad debts 11 000 √
Depreciation: Fixtures and fittings 16 500 √
Equipment 40 000 √
(495 600)
Profit for the year 81 900
(11)
(b)(i)
Capital expenditure- Money spent on purchasing a non-current asset and improving or
extending existing non-current assets / provide long term benefits√√
Revenue expenditure- Money spent running the business on a day to day basis / provide
benefits for less than one year √√
(4)
(ii)
• Repair of equipment- Revenue expenditure √ day to day expenditure √
• Purchase of new equipment- Capital expenditure √ purchase of non-current asset√
• Purchase of second hand equipment- Capital expenditure √ purchase of non-current
asset√
(6)
(c)
Equipment – Mobile Crane Account
£ £
2012 2012
1 Jan Bank 64 000 √ 31 Dec Balance c/d 64 000 √
64 000 64 000
2013 2013
1 Jan Balance b/d 64 000 31 Dec Balance c/d 64 000 √of
64 000 64 000
2014 2014
1 Jan Balance b/d 64 000 30 June Disposal 64 000 √of
64 000 64 000
Equipment- Mobile Crane provision for depreciation account

£ £
2012 2012
31 Dec Balance c/d 16 000 31 Dec Income statement / depreciation 16 000 √
16 000 16 000
2013 2013
1 Jan Balance b/d 16 000 √of
31 Dec Balance c/d 28 000 31 Dec Income statement/ depreciation 12 000 √of
28 000 28 000
2014 2014
1 Jan Balance b/d 28 000 √ of
30 June Disposal √ 32 500 √of 31 Dec Income statement / depreciation 4 500 √of
32 500 32 500
(11)
(d)(i) £
Depreciation 21 000 √
Operator’s wages 20 000 √√
Transport 16 000 √√
Servicing and repairs 3 000 √
Overheads 15 000 √
Total cost for year 75 000
(ii)
Total cost 75 000 + 15 000√of = £450 √√(√of)
Days of hire 200 √√
(12)
(e)
Valid answers may include:

In favour
• Cash will be generated from general trading profit
• The business may set aside cash for the replacement of a non-current asset
Against
• Depreciation is non-cash
• Depreciating a non-current asset does not enable a replacement to be purchased
• Depreciation is an estimate of the loss in value of an existing non-current asset
• Depreciating a non-current asset does not directly generate cash
√√ x 4 points (MAX two points in favour and two points against) (8)
(Total 52 marks)
3. Vaso Technology manufactures components for the electronics industry. The following balances are
available from the books on 31 December 2013:
£
Inventory 1 January 2013:
Raw materials 30 000
Work in progress 52 000
Finished goods 78 000
Purchases of raw materials 195 000
Production wages 134 000
Packaging 25 000
Management salaries:
Production 85 000
Office 106 000
Production equipment (at cost) 110 000
Production equipment provision for depreciation 46 000
Premises rent 30 000
Sundry expenses 24 000
Revenue (sales) 650 000
Office computers (at cost) ?
Office computers provision for depreciation ?
Additional information at 31 December 2013:
(1) Vaso Technology values the inventory on the First In First Out (FIFO) basis.
The following summary relates to the raw materials:

1 January 2013 Inventory 15 000 items @ £2 each
January – June Purchases 30 000 items @ £2.50 each
July – December Purchases 40 000 items @ £3 each
January – December Issues 60 000 items
Work in progress was valued at £49 000
Finished goods were valued at £63 000
(2) Production wages accrued £6 500.
(3) Packaging is 70% direct and 30% indirect.
(4) Premises rent and sundry expenses are to be apportioned 75% to production and 25% to the
office.
(5) Depreciation is charged on production equipment at the rate of 25% per annum reducing
balance method.
(6) Vaso Technology transfers production to finished goods at £5 per item. During the year 96 000
items were completed and transferred.
P43182A 6
MSB - Page 33
Required:
(a) Prepare the Manufacturing Account for the year ended 31 December 2013.
(18)
The following information relates to the office computers:
1 January 2011 Purchased office computers for £20 000

30 June 2013 Sold office computers costing £6 000 for £2 500
1 October 2013 Purchased office computers for £8 000 paying by cheque
Vaso Technology has the following depreciation policy:

• Office computers are depreciated at the rate of 20% per annum using the straight-line method
• Depreciation is charged pro rata to the months of ownership in the year of purchase or sale
• Vaso Technology uses a disposal account for the sale of office computers.
(b) Prepare the following ledger accounts for the year ended 31 December 2013:
(i) Office Computers Account

(6)
(ii) Office Computers Provision for Depreciation Account.

(8)
(c) Prepare the Statement of Comprehensive Income for the year ended 31 December 2013,
showing clearly the gross profit and the profit for the year.
(12)
(d) Evaluate the use of the straight-line method of depreciation for office computers.
(8)
(Total 52 marks)
P43182A 7 Turn over

MSB - Page 34
3(a) Vaso Technology

Manufacturing Account for the year ended 31 December 2013
£ £
Opening inventory of raw materials 30 000 √
Purchases of raw materials 195 000 √
225 000
Less Closing inventory of raw materials (75 000) √√
Cost of raw materials consumed 150 000 √
Production wages (134 000 + 6 500) 140 500 √
Packaging (25 000 x 70%) 17 500 √
Prime cost 308 00 √ of+w
Plus overheads:
Packaging (25 000 x 30%) 7 500 √
Production salaries 85 000 √
Depreciation – Production equipment 16 000 √
Premises rent 22 500 √
Sundry expenses 18 000 √
149 000
457 000
Work in progress at start 52 000 √
at end (49 000) √
3 000
Production cost 460 000 √ of+w
Profit on manufacture 20 000 √ (of)
Transfer to trading account 480 000 √ of+w
(18)
(b) Office Computers Account
£ £
1 Jan Balance b/d 20 000 √ 30 June Disposal √ 6 000 √
1 Oct Bank 8 000 √ 31 Dec Balance c/d 22 000 √
28 000 28 000
(6)
Office Computers – Provision for Depreciation Account
£ £
30 June Disposal √ 3 000 √ 1 Jan Balance b/d 8 000 √
31 Dec Balance c/d 8 800 √ 31 Dec Income statement/deprec.
(600 +400+2 800) 3 800 √√√ (√of)
11 800 11 800
(8)
MSB - Page 35
(c)
Statement of Comprehensive Income for the year ended 31 December 2013
£ £
Sales 650 000 √
Opening inventory of finished goods 78 000 √
Goods transferred from manufacturing 480 000 √ of
558 000
Less Closing inventory of finished goods (63 000) √
Cost of sales 495 000
Gross profit 155 000 √ of
Less
Office salaries 106 000 √
Premises rent 7 500 √
Sundry expenses 6 000 √
Depreciation office computers 3 800 √of
Loss on sale of office computers 500 √of
(123 800)
31 200
Plus Profit on manufacture 20 000 √of
Profit for the year 51 200 √ w + of
(12)
(d) Valid points may include:

Positive
• Office computers will give equal benefit to the business in each year
• Profit will not be distorted over the early years
Negative
• Office computers will lose most of their value in the early years
• Office computers will not be accurately valued in the Financial Position
Statement
• The cost of the office computers will increase as repairs are required
• Straight line is not accepted by the tax authorities.
DO NOT ACCEPT easy to calculate or consistency.

√√ per point x 4 - MAX 2 points positive and 2 points negative
(8)
(Total 52 marks)
MSB - Page 36
7. Varsini Transport delivers goods nationwide. The following information relates to the delivery
vehicles owned by Varsini Transport.
1 April 2011 Purchased delivery vehicle A £20 000
1 July 2012 Purchased delivery vehicle B £18 000
1 April 2013 Purchased delivery vehicle C £25 000
30 June 2013 Purchased delivery vehicle D for £28 000 giving delivery vehicle A in
part exchange
Varsini Transport has the following depreciation policy:
• Delivery vehicles are depreciated at the rate of 20% per annum using the straight line method
• Depreciation is charged on delivery vehicles purchased and sold during the year on a pro rata
basis according to the months of ownership
• All sales of delivery vehicles are recorded through a disposal account
• All payments and receipts for delivery vehicles are by cheque
Required:
(a) Complete the following table in your answer book showing the depreciation charged on
delivery vehicles in each of the years ending 31 March 2013 and 31 March 2014.
Year ended Delivery Delivery Delivery Delivery Total

£ £ £ £ £
31 March 2013
31 March 2014
(6)
(b) Prepare for the years ended 31 March 2013 and 31 March 2014 the:
(i) Delivery Vehicles Account

(8)
(ii) Provision for Depreciation of Delivery Vehicles Account.

(8)
P43179RA 12
MSB - Page 37
Varsini Transport had the following costs in the year ended 31 March 2014:
1. Writing the sign of the business on new delivery vehicles

2. Replacement tyres
3. Installing satellite navigation into each delivery vehicle
(c) Identify whether each of the costs above is capital expenditure or revenue expenditure. State
the reason for your answer.
(6)
(d) Evaluate the suitability of the straight line method when depreciating delivery vehicles.
(4)
(Total 32 marks)
P43179RA 13
MSB - Page 38
7 (a)
Year ended Delivery Delivery Delivery Delivery Total
£ £ £ £ £
31 March 2013 4 000 √ 2 700 √ - - 6 700
31 March 2014 1 000 √ 3 600 √ 5 000 √ 4 200 √ 13 800
(6)
(b)(i)
Delivery Vehicles Account
£ £
1 April 2012 Balance b/d 20 000 √ 31 Mar 2013 Balance c/d 38 000 √
1 July 2012 Bank (B) √ 18 000 √
38 000 38 000
1 April 2013 Balance b/d 38 000 30 June 2013 Disposal (A) 20 000 √
Bank (C) 25 000 √
30 June 2013 Bank (D) 8 000
Part exchange 20 000 √ 31 Mar 2014 Balance c/d 71 000
91 000 91 000
1 April 2014 Balance b/d 71 000 √
(8)
(ii)
Delivery Vehicles – Provision for Depreciation Account
£ £
1 April 2012 Balance b/d 4 000 √
31 March 2013 Balance c/d 10 700 31 March 2013 Income Stat’nt √ 6 700 √
10 700 10 700
30 June 2014 Disposal √ 9 000 √1 April 2013 Balance b/d 10 700 √of
31 March 2014 Balance c/d 15 500 31 March 2014 Income Stat’nt 13 800 √of
24 500 24 500
1 April 2014 Balance b/d 15 500 √of
(8)
(c)
(1) Capital expenditure √√ – the advertising generated will be maintained over the life of the
vehicle.
(2) Revenue expenditure √√ -the tyres will only last for a short period and will not enhance the
value of the vehicle.
(3) Capital expenditure √√ - satellite navigation will last for many years and will enhance the
capital value of the vehicle.
(6)
MSB - Page 39
(d) ) Valid points may include:

Positive
• Equal benefit will be received each year from the vehicle therefore equal
depreciation should be charged
• Profit will not be distorted in the early years due to high depreciation.
Negative
• Costs of depreciation plus repairs will increase over the years
• Higher depreciation on vehicles in the early years meaning that the net book
value and market value will be at variance.
√√ per point x 2 – MAX 1 points positive and 1 points negative

(4)
(Total 32 marks)
MSB - Page 40
2. The following balances were in the ledger of Arpan on 1 January 2012:

£
Sundry expenses 600 Dr
Premises repairs 250 Dr
Rent receivable 300 Dr
The following were the transactions for the year ended 31 December 2012. All payments and
receipts were made by cheque:
1. Sundry expense payments:

£
14 May Paid 500
30 October Paid 900 for the six months to 31 March 2013
2. Premises repairs payments:

£
8 January Paid 450
1 April Paid 900
18 August Paid 875
On 31 December 2012 it was estimated that £340 was owing for premises repairs.
3. Rent receivable:
£
6 February Received 1 200
26 June Received 900
The rent receivable for the year was £1 600.
Required:
(a) Explain the meaning of the debit balance on the Rent receivable account on 1 January 2012.
(4)
(b) Prepare the following accounts for the year ended 31 December 2012, including the appropriate
transfer to the financial statements:
(i) Sundry expenses account

(4)
(ii) Premises repairs account
(4)
(iii) Rent receivable account.
(4)
P42221A 4
MSB - Page 41
On 1 January 2012 Arpan had the following additional balances in his ledger:
£
Machine at cost 36 000
Machine – provision for depreciation ?
All machinery was purchased on 1 January 2010 and has a residual value of £2 000. Arpan has
depreciated his machinery over a five-year period using the straight line method.
He has decided to change his method of depreciation to 25% per annum reducing balance, backdated
to the date of machine purchase. The change and adjustment are to be recorded in the Statement of
Comprehensive Income for the year ended 31 December 2012.
On 1 April 2012 a new machine was purchased:

£
Cost 8 000
Installation 1 600
Staff training 2 000
Annual machine insurance 00 400
12 000
He charges a full year’s depreciation on machines in the year of purchase.
Required:
(c) State one accounting concept which:
(i) supports the change of depreciation method proposed by Arpan

(ii) does not support the change of depreciation method proposed by Arpan.
(4)
(d) Distinguish between capital expenditure and revenue expenditure.
(4)
(e) State, giving your reasons, whether each of the following is capital expenditure or
revenue expenditure:

(4)
(f) Calculate, showing clearly all workings, the:
(i) adjustment required to the provision for depreciation on the machines to

31 December 2011 to account for the change in depreciation method
(ii) depreciation charge on all the machines for the year ended 31 December 2012.
(8)
(g) Prepare, for the year ended 31 December 2012, the:
(i) Machinery account
(3)
(ii) Machinery – provision for depreciation account.
(5)
(h) Evaluate Arpan’s decision to change the basis of charging depreciation on machines
from the straight line method to reducing balance method.
(8)
(Total 52 marks)

P42221A 5 Turn over
MSB - Page 42

Number
2(a) Accrued income √√. A debit balance on the Rent Receivable (4)
Account means that Arpen is owed rent √√ by a tenant who is
therefore a debtor of the business.√√ MAX 4 x √

Number
2(b) (i) Sundry Expenses Account
£ £
1 January Balance b/d 600 31 December Income Statement √ 1 550 √
14 May Bank 500 √ Balance c/d 450
30 October Bank 900
2 000 2 000
1 January Balance b/d 450 √of (if on debit)
(4)

Number
2(b)(ii) Premises Repairs Account
£ £
1 January Balance b/d 250 31 December Income Statement 2 815 √
8 January Bank 450
1 April Bank 900 √
18 August Bank 875
31 December Balance c/d 340 √
2 815 2 815
1 January Balance b/d 340 √of (4)
(if on credit)

Number
2(b)(iii) Rent Receivable Account
£ £
1 January Balance b/d 300 6 February Bank/cash 1 200 √
31 December Income Statement 1 600 √ 26 June Bank/cash 900
Balance c/d 200 √
2 100 2 100
1 January Balance b/d 200 √of (4)
(if on credit)

Number
2(c) (i) Prudence –√√ losses should be charged as soon as they are identified.
The depreciation on machinery will be high in the early years not (4)
evenly spread over the life of the asset.
(ii) Consistency –√√ when a method of depreciation is chosen for a
non-current asset this should be consistently applied over the life of
the asset to ensure that the accounts are not distorted.
MSB - Page 43

Number
2(d) Capital expenditure –purchase or enhancement of non-current
assets. √√
Revenue expenditure –day to day expenses which will be used (4)
within an accounting year. √√

Number
2(e) Machine installation – Capital expenditure √√
Annual machine insurance – Revenue expenditure √√
(4)

Number
2(f)(i) £
2(f)(ii) Depreciation charged (straight line) – 2010 6 800 √
2011 6 800
13 600 √
Depreciation (reducing balance) –
2010 (36 000-0) x 25% 9 000 √
2011 (36 000 -9 000) x 25% 6 750 √
15 750 √ (8)
Adjustment Increase in provision 2 150 √
Depreciation charge 2012 7 463 √ √ (√of)
Working 2012 charge – (36 000 + 9 600- 15 750) x 25% = £7 463
Note: if adjustment £2 150 stated award 6 x √ without reviewing workings.

Number
2(g)(i) Machinery Account
£ £
Balance b/d 36 000 Balance c/d 45 600
Bank (of if £12 000 or less) 9 600 √√(√of)
45 600 45 600
Balance b/d 45 600 √of (if on debit) (3)
MSB - Page 44

Number
2(g)(ii) Machinery – Provision for Depreciation account
£ £
Balance b/d 13 600 √of
Income Statement-
Adjustment 2 150 √of
Balance c/d 23 213 2012 charge 7 463 √√
23 213 23 213
Balance b/d 23 213 √of
(if on credit)
Note: If Balance b/d stated as £15 750 award √√ (£13 600 + £2 150) (5)
If charge to income statement £9 613 award √√√ (£2 150 + £7 463)

Number
2(h) Valid answers may include:
Points for
• Greater depreciation will be charged in the early years which
reflects the situation with machinery
• Carry over value will be closer to market value resulting in
more accurate financial statement value.
• Evens out total cost of ownership when repair costs are
added to depreciation.
• Provides a more realistic book value
Points against:
• Distorts profit calculation
• Not consistent with previous practice.
• Not appropriate if machine used equally from year to year
√√ per valid point x 4 points. MAX 2 points for and MAX two points
against.
NOT
• Difficult to calculate
• Time consuming (8)
• Costly

Number
3(a)(i) Realisation – Profit is regarded as having been earned when the
goods are passed to the customer and he incurs liability for
them.√√
Breach- The sale or return has not realised the profit as the (3)
customer has not incurred liability for them.√
MSB - Page 45
7. Zoe started a taxi business on 1 January 2009. The following information relates to the vehicles
account in the non-current assets:
1 January 2009 Purchased Vehicle A by cheque for £6 000

1 April 2010 Purchased Vehicle B on credit from Soames Garages for £8 000
1 July 2010 Purchased Vehicle C by cheque for £10 000
1 July 2011 Purchased Vehicle D for £9 000 giving in part exchange Vehicle B at an agreed
valuation of £5 400. The balance of the purchase price was paid by cheque.
Zoe has the following depreciation policy:

Vehicles are depreciated at the rate of 20% per annum using the straight line method
Depreciation is charged on vehicles purchased or sold during a year in proportion to the months
of ownership.
Required:
(a) Explain:
(i) the accounting concept of going concern

(2)
(ii) why the accounting concept of going concern is important when charging depreciation in
the financial statements.
(2)
(b) Prepare a table showing the depreciation charged on each of the vehicles A, B, C and D, in
each of the years 2009, 2010 and 2011.
(8)
(c) Prepare the following for the year ended 31 December 2011:
(i) Vehicle account

(ii) Vehicle – Provision for depreciation account
(iii) Vehicle disposal account.
(10)
(d) (i) Distinguish between capital expenditure and revenue expenditure.

(2)
(ii) State, giving your reasons, whether the following would be capital expenditure or
revenue expenditure:
Vehicle tax for Vehicle A
A new engine for Vehicle A.
(4)
(e) Evaluate Zoe’s choice of the straight line method as a basis for charging depreciation on
vehicles.
(4)
(Total 32 marks)
P40265RA 13
MSB - Page 46
Leave
blank
If you answer question 7, put a cross in this box ( ).
Source material for question 7 is on page 13 of the source booklet.
7. (a) Explain:
(i) the accounting concept of going concern
................................................................................................................................
................................................................................................................................
................................................................................................................................
(2)
(ii) why the accounting concept of going concern is important when charging
depreciation in the financial statements.
................................................................................................................................
................................................................................................................................
................................................................................................................................
(2)
(b) Prepare a table showing the depreciation charged on each of the vehicles A, B, C and
D, in each of the years 2009, 2010 and 2011.
Vehicle
A B C D TOTAL
2009
2010
2011
TOTAL
(8)
26
MSB - Page 47 *P40265RA02628*

Number
7(a)(i) The concept of going concern assumes that the business has an (2)
indefinite life/foreseeable future. √√

Number
7(a)(ii) The cost of purchasing a non-current asset will fall in a single year,
but the depreciation placed into the statement of comprehensive
income will relate only to the amount estimated to have been used (2)
in that period.√√

Number
7(b) Vehicle
A B C D Total
£ £ £ £
£
2009 1 200 √
1 200 (8)
2010 1 200 √ 1 200 √ 1 000 √
3 400
2011 1 200 √ 800 √ 2 000 √
900 √ 4 900
Total 3 600 2 000 3 000 900
MSB - Page 48

Number
7(c)
Vehicle account
£ £
1/1/2011 Balance b/d 24 000 √ 30/9/2011 Disposal /
8 000 √
Sale of
vehicle
1/7/2011 Bank/creditor/ 9 000 √ 31/12/2011 Balance
c/d 25 000
Cash/Purchase/Veh D 33 000
33 000
1/1/2012 Balance b/d 25 000 √
Vehicle – provision for depreciation account

£ £
1/7/2011 Disposal / 2 000 √ 1/1/2011 Balance b/d 4
600 √OF
Sale of vehicle
31/12/2011 Balance c/d 7 500 31/12/2011 Income state’t 4 900
√OF
9 500 9
500
1/1/2012 Balance b/d 7 500
√OF (10)
Disposal account
£ £
30/9/2011 Vehicle a/c 8 000 1/7/2011 Depreciation
2 000
31/12/2011 Exchange 5
400 √
31/12/2011 Income state’t
600 √OF
8 000 /Loss on sale
8 000

Number
7(d)(i) Capital expenditure is the purchase of non-current assets or the
enhancement of non-current assets.√
Revenue expenditure is the day to day operating expenditure of the

business.√
(2)
MSB - Page 49

Number
7(d)(ii) The vehicle tax is a day to day expenditure which will not add to the
value of the non-current asset. Therefore it is revenue
expenditure √√.
(4)
A new engine will enhance the value of the non-current asset and
therefore will be capital expenditure √√.

Number
7(e) Valid answers may include:
Benefits
• Equal amounts charged in each year of ownership for
benefit received
Against
• Vehicles will depreciate more in the early years of
ownership
• Total cost of ownership when maintenance is added
will rise. (4)
√√ for one benefit and √√ for one point against.
MSB - Page 50

Depreciation

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MyStudyBro - Revision Exercise Tool

Page 43 (WAC01 or WAC11) 2013 Winter - Answer

Page 46 (WAC01 or WAC11) 2012 Summer

5 Fast Response is a business delivering goods to customers. The following information

(e) Identify whether each of the following costs is a capital expenditure or a

(Total for Question 5 = 30 marks)

If you answer Question 5 put a cross in the box .

Delivery Delivery Delivery Delivery Total

An attempt at an evaluation is presented, using

Level 3 5-6 Accurate and thorough knowledge and understanding.

Question Answer Mark

Year ended motor motor motor motor Total

Question Answer Mark

Question Answer Mark

Delivery Vehicles Account

Question Answer Mark

Question Answer Mark

Candidates to distinguish a point for going concern

Question Answer Mark

 Motor vehicle delivery cost Capital expenditure (1) AO1

 Road licence Revenue expenditure (1) AO1

 Insurance Revenue expenditure (1) AO1

 Sign writing of business name Capital expenditure (1) AO1

Question Indicative Content Mark

Potential positive arguments for straight line

Fast Response will obtain many years usage from each

Potential negative points against straight line

As the motor vehicle becomes older it will require more

financial and perhaps non-financial information, with a

Level 3 5-6 Accurate and thorough knowledge and understanding.

Question Answer Mark

Rent and rates – Floor area (1) AO1 the expense

Question Answer Mark

Land and buildings 250 000 80 000 170 000

Motor vehicles 72 000 30 000 42 000

Loose tools 15 000 5 000 10 000

Total 337 000 115 000 222 000

(Total for Question 4 = 30 marks)

(c) Complete the schedule of non-current assets.

Cost at 30 June 2016 250 000 72 000 15 000

Additions for year

Disposals for year

Total non-current asset cost

Provision at 30 June 2016 80 000 30 000 5 000

Question Answer Mark

Question Answer Mark

Question Answer Mark

Land and buildings

250 000 + 60 000 = 310 000 (1) AO2 x 10%

Question Answer Mark

Carrying value after disposal 37 000 (1) AO3 +

((42 000 – 5 000 (1) AO3) + 23 000 (1) AO2))

Question Answer Mark

15 000 + 6 000 = 21 000 (1) AO2 – 14 000

= 7 000 (1) AO3 – 5000 = 2 000 (1) AO3

Question Answer Mark

Schedule of Non-current Assets at 30 June 2017.

Cost at 30 June 250 000 72 000 15 000

Question Indicative Content Mark

Potential positive arguments for the policy

Potential negative points for the policy

4 The following is a schedule of non-current assets from the records of Jabir.

Non-current Balances at 1 May 2015 For the year ended 30 April

The depreciation policy of Jabir is as follows: