Accounting For Depreciation And Disposal of Non-Current Assets (Copy)
Topic 4.2: Accounting for Depreciation and Disposal of Non-Current Assets – Quiz
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. What is depreciation?
A. Increase in asset value over time
B. Allocation of cost of a non-current asset over its useful life
C. Replacement of old assets with new ones
D. Purchase of fixed assets
2. Which of the following is a reason for charging depreciation?
A. To reduce profit
B. To increase asset value
C. To match cost with revenue
D. To improve bank balance
3. The straight-line method of depreciation charges:
A. Decreasing amounts each year
B. Varying amounts each year
C. An equal amount every year
D. Only in the final year
4. Which of the following methods charges more depreciation in early years?
A. Straight-line
B. Revaluation
C. Reducing balance
D. Units of production
5. What is the formula for annual depreciation using the straight-line method?
A. (Cost × Rate)/100
B. (Cost − Residual Value)/Useful Life
C. (Cost + Residual Value)/Useful Life
D. (Cost × Useful Life) + Residual Value
6. Under the reducing balance method, depreciation is calculated on:
A. Cost of asset
B. Residual value only
C. Net book value at the beginning of the year
D. Accumulated depreciation
7. Which depreciation method is based on actual market estimates?
A. Reducing balance
B. Revaluation method
C. Straight-line method
D. Sum-of-years-digits
8. What is the entry to record annual depreciation?
A. Debit Asset, Credit Bank
B. Debit Depreciation Expense, Credit Provision for Depreciation
C. Debit Provision for Depreciation, Credit Asset
D. Debit Asset, Credit Depreciation
9. The provision for depreciation account is:
A. An asset
B. A liability
C. A contra-asset account
D. An income
10. Which account is debited when recording depreciation?
A. Asset account
B. Provision for depreciation
C. Depreciation expense
D. Bank
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. What is the purpose of the disposal account?
A. To calculate net profit
B. To record replacement of assets
C. To determine profit or loss on sale of asset
D. To record depreciation
12. What is the journal entry to transfer the asset to the disposal account?
A. Debit Disposal, Credit Asset
B. Debit Asset, Credit Disposal
C. Debit Bank, Credit Disposal
D. Debit Profit and Loss, Credit Disposal
13. When an asset is sold, the sale proceeds are:
A. Debited to asset account
B. Credited to disposal account
C. Credited to asset account
D. Credited to provision for depreciation
14. If profit on disposal is made, which account is credited?
A. Asset account
B. Disposal account
C. Profit and Loss account
D. Bank
15. Which of these methods does NOT maintain a provision for depreciation account?
A. Straight-line
B. Reducing balance
C. Revaluation
D. None of the above
16. What happens to accumulated depreciation when an asset is disposed?
A. It is written off in asset account
B. Transferred to bank
C. Debited to disposal account
D. Ignored
17. A machine costing $10,000 has accumulated depreciation of $4,000. If sold for $7,000, what is the profit or loss?
A. Profit $1,000
B. Loss $1,000
C. Profit $3,000
D. Loss $3,000
18. Which of the following is included in the calculation of depreciation?
A. Market price
B. Replacement cost
C. Residual value
D. Selling price
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
19. What is meant by “useful life” of an asset?
A. Time before it is resold
B. Legal life
C. Expected period of use in business
D. Number of items produced
20. Depreciation ensures that:
A. Cash is matched with fixed asset
B. Net profit is understated
C. Asset cost is spread over its useful life
D. Profit is maximised
21. A revaluation of a fixed asset results in:
A. An exact residual value
B. Change in depreciation calculation
C. No effect on accounts
D. New ownership
22. If depreciation is not charged, what is the result?
A. Overstated expense
B. Understated net profit
C. Overstated asset and net profit
D. No impact
23. The profit or loss on disposal is transferred to:
A. Asset account
B. Bank account
C. Income statement (Profit & Loss)
D. Provision for depreciation
24. What happens when residual value increases?
A. Depreciation increases
B. Depreciation decreases
C. No change
D. Asset cost increases
25. What is net book value?
A. Purchase price of the asset
B. Asset value + profit
C. Cost of asset − accumulated depreciation
D. Asset cost − bank balance
26. In the revaluation method, which account is used directly?
A. Provision for depreciation
B. Asset account
C. Disposal account
D. Expense account
27. What is the entry to transfer accumulated depreciation to disposal account?
A. Debit Asset, Credit Provision for Depreciation
B. Debit Provision for Depreciation, Credit Disposal
C. Debit Disposal, Credit Provision for Depreciation
D. Debit Disposal, Credit Asset
28. Which account reflects the sale price of the disposed asset?
A. Asset account
B. Disposal account
C. Provision for depreciation
D. Capital account
29. If a machine is sold for less than its net book value, it results in:
A. Profit
B. Revenue
C. Loss
D. Capital
30. Which of the following is NOT a method of depreciation?
A. Straight-line
B. Revaluation
C. Written-up value
D. Reducing balance
Answer key and explanations
Topic 4.2 – Accounting for Depreciation and Disposal of Non-Current Assets
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. Correct Answer: B
Explanation: Depreciation is the allocation of the cost of a non-current asset over its useful life.
2. Correct Answer: C
Explanation: The matching principle requires depreciation so that cost of using assets is matched with revenue earned.
3. Correct Answer: C
Explanation: Straight-line charges a fixed amount of depreciation each year.
4. Correct Answer: C
Explanation: Reducing balance applies depreciation on the decreasing book value, so higher amounts are charged in early years.
5. Correct Answer: B
Explanation: Straight-line depreciation = (Cost − Residual Value) / Useful Life.
6. Correct Answer: C
Explanation: Reducing balance is calculated on the asset’s net book value at the start of the year.
7. Correct Answer: B
Explanation: Revaluation is based on re-estimating the asset’s current market value annually.
8. Correct Answer: B
Explanation: Debit Depreciation Expense (income statement), Credit Provision for Depreciation (balance sheet).
9. Correct Answer: C
Explanation: Provision for depreciation reduces the asset’s value and is treated as a contra-asset.
10. Correct Answer: C
Explanation: Depreciation expense is debited to the income statement account.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Correct Answer: C
Explanation: Disposal account is used to determine profit or loss on sale of non-current assets.
12. Correct Answer: A
Explanation: The cost of the asset is transferred out of the asset account: Debit Disposal, Credit Asset.
13. Correct Answer: B
Explanation: The bank proceeds from sale are credited to the disposal account.
14. Correct Answer: C
Explanation: Profit on disposal is transferred to Profit and Loss (income statement).
15. Correct Answer: C
Explanation: Revaluation does not maintain a provision for depreciation—value is adjusted directly in the asset account.
16. Correct Answer: C
Explanation: Accumulated depreciation is removed by debiting it to the disposal account during asset sale.
17. Correct Answer: A
Explanation: Net book value = 10,000 – 4,000 = 6,000; Sale = 7,000 → Profit = 1,000.
18. Correct Answer: C
Explanation: Residual value is subtracted from cost to determine depreciation.
19. Correct Answer: C
Explanation: Useful life refers to how long the business expects to use the asset.
20. Correct Answer: C
Explanation: Depreciation spreads asset cost fairly over the period it benefits the business.
21. Correct Answer: B
Explanation: A revaluation affects future depreciation amounts based on new value.
22. Correct Answer: C
Explanation: If depreciation is not charged, both profit and asset values are overstated.
23. Correct Answer: C
Explanation: Profit or loss on sale is a gain/loss that affects the income statement.
24. Correct Answer: B
Explanation: A higher residual value lowers the depreciable amount—depreciation decreases.
25. Correct Answer: C
Explanation: Net book value = Cost − Accumulated Depreciation.
26. Correct Answer: B
Explanation: In revaluation, the asset account is directly adjusted to new value.
27. Correct Answer: C
Explanation: Debit Disposal, Credit Provision for Depreciation removes accumulated depreciation from the records.
28. Correct Answer: B
Explanation: The sale amount is recorded in the disposal account.
29. Correct Answer: C
Explanation: If sale price is less than book value, it’s a loss.
30. Correct Answer: C
Explanation: Written-up value is not a valid depreciation method. Valid ones include straight-line, reducing balance, revaluation.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course