Non-current assets: depreciation

Topic 7: Non-current Assets — Depreciation — 50 Hard MCQs

1. A machine cost $60 000 and has an estimated residual value of $6000. Its useful life is 6 years.

What is the annual depreciation using the straight-line method?

A $9000
B $10 000
C $11 000
D $54 000

2. A vehicle cost $48 000. It is depreciated at 25% per annum using the reducing balance method.

What is the carrying value after two years?

A $24 000
B $27 000
C $30 000
D $36 000

3. A machine cost $80 000 and has accumulated depreciation of $32 000. Depreciation is charged at 20% per annum on cost.

What is the depreciation charge for the year?

A $6400
B $9600
C $16 000
D $48 000

4. A machine cost $80 000 and has accumulated depreciation of $32 000. Depreciation is charged at 20% per annum using the reducing balance method.

What is the depreciation charge for the year?

A $6400
B $9600
C $16 000
D $48 000

5. Equipment cost $45 000. Residual value is $5000. Useful life is 8 years.

What is the carrying value after 3 years using straight-line depreciation?

A $15 000
B $25 000
C $30 000
D $40 000

6. A business bought a machine for $72 000 on 1 April. The financial year ends on 31 December. Depreciation is charged at 20% per annum on cost, with depreciation charged from the month of purchase.

What is the depreciation charge for the year ended 31 December?

A $3600
B $10 800
C $14 400
D $18 000

7. A business bought equipment for $36 000 on 1 July. The financial year ends on 31 December. Depreciation is charged at 25% per annum using the reducing balance method.

What is the depreciation charge for the first year?

A $4500
B $9000
C $13 500
D $27 000

8. A non-current asset cost $100 000. It has accumulated depreciation of $40 000. The business changes the estimated remaining useful life to 5 years and residual value to $10 000.

What is the new annual straight-line depreciation?

A $8000
B $10 000
C $12 000
D $18 000

9. A machine cost $50 000 and has accumulated depreciation of $20 000. It is revalued to $45 000.

What is the revaluation surplus?

A $5000
B $15 000
C $25 000
D $45 000

10. A building cost $200 000 and has accumulated depreciation of $50 000. It is revalued to $260 000.

What is the revaluation surplus?

A $60 000
B $110 000
C $150 000
D $260 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A machine is revalued from a carrying value of $70 000 to $95 000. Its remaining useful life is 5 years, with no residual value.

What is the annual depreciation after revaluation?

A $14 000
B $19 000
C $25 000
D $95 000

12. A machine cost $90 000. Accumulated depreciation is $30 000. It is revalued to $75 000. The remaining useful life is 3 years.

What is the annual depreciation after revaluation?

A $15 000
B $20 000
C $25 000
D $30 000

13. A vehicle cost $40 000. It is depreciated by 30% per annum using the reducing balance method.

What is the accumulated depreciation after two years?

A $12 000
B $20 400
C $21 600
D $24 000

14. A vehicle cost $40 000. It is depreciated by 30% per annum using the reducing balance method.

What is the carrying value after two years?

A $16 000
B $19 600
C $21 600
D $28 000

15. A business depreciates machinery at 10% per annum on cost. Machinery costing $120 000 was purchased on 1 January. Additional machinery costing $30 000 was purchased on 1 July.

What is the depreciation charge for the year ended 31 December?

A $12 000
B $13 500
C $15 000
D $18 000

16. A business depreciates equipment at 20% per annum on cost. Equipment costing $50 000 was owned at the start of the year. Equipment costing $20 000 was purchased on 1 October.

What is the depreciation charge for the year ended 31 December?

A $10 000
B $11 000
C $14 000
D $20 000

17. A business depreciates fixtures at 15% per annum using the reducing balance method. Fixtures cost $80 000 and accumulated depreciation at the start of the year was $22 000.

What is the depreciation charge for the year?

A $8700
B $12 000
C $15 300
D $58 000

18. A non-current asset has a carrying value of $24 000. It is depreciated at 25% per annum using the reducing balance method.

What is the carrying value after one year?

A $6000
B $18 000
C $24 000
D $30 000

19. Which statement about straight-line depreciation is correct?

A depreciation decreases each year
B depreciation is based on carrying value
C depreciation charge is usually equal each year
D depreciation is never affected by residual value

20. Which statement about reducing balance depreciation is correct?

A depreciation is always the same amount each year
B depreciation is based on the asset’s carrying value
C accumulated depreciation never increases
D residual value is always ignored in all cases

21. Which asset is most suitable for reducing balance depreciation?

A leasehold land with constant benefit
B machine giving higher benefit in earlier years
C building with unlimited life
D inventory held for resale

22. Which asset is most suitable for straight-line depreciation?

A asset providing equal benefit over its life
B asset used heavily only in the first year
C inventory bought for resale
D trade receivable

23. A machine cost $75 000. Residual value is $15 000. Useful life is 5 years.

What is accumulated depreciation after 4 years using straight-line depreciation?

A $12 000
B $48 000
C $60 000
D $75 000

24. A machine cost $75 000. Residual value is $15 000. Useful life is 5 years.

What is the carrying value after 4 years?

A $12 000
B $15 000
C $27 000
D $60 000

25. A machine cost $100 000. Residual value was originally $10 000 and useful life was 9 years. After 3 years, the residual value is revised to $16 000 and remaining useful life is revised to 4 years.

What is the revised annual depreciation?

A $13 500
B $14 000
C $16 000
D $18 500

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. A machine cost $100 000 and depreciation was charged at 10% per annum on cost for three years. The residual value is then revised to $25 000 and remaining useful life to 5 years.

What is the revised annual depreciation?

A $9000
B $10 000
C $15 000
D $25 000

27. A business fails to record depreciation of $8000 for the year.

What is the effect?

A profit overstated and non-current assets overstated
B profit overstated and non-current assets understated
C profit understated and non-current assets overstated
D profit understated and non-current assets understated

28. A business records depreciation of $12 000 instead of $9000.

What is the effect?

A profit overstated by $3000 and assets overstated by $3000
B profit understated by $3000 and assets understated by $3000
C profit overstated by $21 000 and assets overstated by $21 000
D profit understated by $21 000 and assets understated by $21 000

29. A business charges depreciation twice by mistake. Correct depreciation should be $7000.

What is the effect on profit?

A profit overstated by $7000
B profit understated by $7000
C profit understated by $14 000
D no effect on profit

30. A business depreciates equipment at 20% per annum on cost. Equipment cost $60 000. Depreciation for the year was wrongly calculated at 20% on carrying value of $42 000.

By how much is depreciation understated?

A $3600
B $8400
C $12 000
D $18 000

31. A business depreciates machinery at 25% per annum using reducing balance. Machinery cost $80 000 and accumulated depreciation is $35 000. Depreciation was wrongly calculated on cost.

By how much is depreciation overstated?

A $8750
B $11 250
C $20 000
D $35 000

32. Which double entry records annual depreciation?

A debit accumulated depreciation, credit depreciation expense
B debit depreciation expense, credit accumulated depreciation
C debit non-current asset, credit depreciation expense
D debit bank, credit accumulated depreciation

33. Which account normally has a credit balance?

A depreciation expense
B accumulated depreciation
C machinery cost
D repairs expense

34. Where is depreciation expense shown?

A statement of financial position as equity
B income statement as an expense
C cash book as a payment
D statement of changes in equity as dividend

35. Where is accumulated depreciation shown?

A deducted from non-current assets in the statement of financial position
B added to current assets
C shown as income in the income statement
D included in purchases

36. A business charges depreciation of $5000. What is the effect on the statement of financial position?

A assets increase and capital increases
B assets decrease and capital decreases
C liabilities increase and assets increase
D current assets decrease and current liabilities decrease

37. Which statement about depreciation is correct?

A depreciation is a cash expense paid to replace assets
B depreciation allocates the cost of an asset over its useful life
C depreciation creates a fund of cash
D depreciation records the exact fall in market value every year

38. Which concept is most closely linked with charging depreciation?

A matching/accruals
B money measurement only
C business entity only
D realisation of revenue

39. A machine cost $30 000. Residual value is $3000. It is depreciated at $4500 per year using straight-line depreciation.

What is the useful life?

A 5 years
B 6 years
C 7 years
D 10 years

40. A machine cost $54 000. Useful life is 6 years. Annual depreciation is $8000.

What is the residual value?

A $0
B $6000
C $8000
D $48 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A business bought machinery for $96 000 on 1 January. It is depreciated at 121/2% per annum on cost.

What is the carrying value after 3 years?

A $36 000
B $60 000
C $72 000
D $84 000

42. A business bought equipment for $64 000 on 1 January. It is depreciated at 121/2% per annum using reducing balance.

What is the carrying value after 2 years?

A $48 000
B $49 000
C $56 000
D $64 000

43. A machine cost $110 000. Residual value is $20 000. Useful life is 6 years. After 2 years, it is revalued to $95 000. Remaining useful life remains 4 years and residual value remains $20 000.

What is the annual depreciation after revaluation?

A $15 000
B $18 750
C $22 500
D $23 750

44. A building has a carrying value of $500 000. It is revalued to $620 000. The remaining useful life is 20 years with no residual value.

What is the annual depreciation after revaluation?

A $25 000
B $31 000
C $120 000
D $620 000

45. A business owns two machines.

Machine	Cost	Accumulated depreciation
A	$40 000	$10 000
B	$60 000	$24 000

Depreciation is charged at 20% per annum using reducing balance.

What is total depreciation for the year?

A $13 200
B $16 000
C $20 000
D $26 400

46. A business owns machinery costing $150 000. Accumulated depreciation at the start of the year is $54 000. Depreciation is 10% per annum on cost.

What is the carrying value at the end of the year?

A $81 000
B $96 000
C $111 000
D $135 000

47. A business owns machinery costing $150 000. Accumulated depreciation at the start of the year is $54 000. Depreciation is 10% per annum using reducing balance.

What is the carrying value at the end of the year?

A $81 000
B $86 400
C $96 000
D $135 000

48. A business bought equipment on 1 April for $36 000. Depreciation is 20% per annum on cost. The financial year ends on 31 March.

What is the depreciation charge for the year ended 31 March?

A $1800
B $5400
C $7200
D $36 000

49. A business bought equipment on 1 October for $36 000. Depreciation is 20% per annum on cost. The financial year ends on 31 March.

What is the depreciation charge for the year ended 31 March?

A $1800
B $3600
C $5400
D $7200

50. A machine has a carrying value of $70 000. It is expected to have a residual value of $10 000 after 4 more years.

What is the annual straight-line depreciation from now?

A $10 000
B $15 000
C $17 500
D $20 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. A — $9000

• Depreciable amount = cost – residual value

• = 60 000 – 6000 = $54 000

• Annual depreciation = 54 000 / 6

• = $9000

2. B — $27 000

• Year 1 depreciation = 25% × 48 000 = $12 000

• Carrying value after year 1 = $36 000

• Year 2 depreciation = 25% × 36 000 = $9000

• Carrying value after year 2 = 36 000 – 9000

• = $27 000

3. C — $16 000

• Depreciation is charged at 20% on cost.

• Cost = $80 000

• Depreciation = 20% × 80 000

• = $16 000

• Accumulated depreciation is ignored when using depreciation on cost.

4. B — $9600

• Reducing balance depreciation is based on carrying value.

• Carrying value = 80 000 – 32 000 = $48 000

• Depreciation = 20% × 48 000

• = $9600

5. C — $30 000

• Annual depreciation = (45 000 – 5000) / 8

• = $5000

• Depreciation for 3 years = 5000 × 3 = $15 000

• Carrying value = 45 000 – 15 000

• = $30 000

6. B — $10 800

• Cost = $72 000

• Annual depreciation = 20% × 72 000 = $14 400

• Bought on 1 April, year ends 31 December = 9 months

• Depreciation = 14 400 × 9/12

• = $10 800

7. A — $4500

• Cost = $36 000

• Annual depreciation = 25% × 36 000 = $9000

• Bought on 1 July, year ends 31 December = 6 months

• Depreciation = 9000 × 6/12

• = $4500

8. B — $10 000

• Carrying value = 100 000 – 40 000 = $60 000

• Revised residual value = $10 000

• Depreciable amount = 60 000 – 10 000 = $50 000

• Remaining life = 5 years

• Annual depreciation = 50 000 / 5

• = $10 000

9. B — $15 000

• Carrying value before revaluation = 50 000 – 20 000 = $30 000

• Revalued amount = $45 000

• Revaluation surplus = 45 000 – 30 000

• = $15 000

10. B — $110 000

• Carrying value before revaluation = 200 000 – 50 000 = $150 000

• Revalued amount = $260 000

• Revaluation surplus = 260 000 – 150 000

• = $110 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. B — $19 000

• Revalued carrying value = $95 000

• Remaining useful life = 5 years

• No residual value

• Annual depreciation = 95 000 / 5

• = $19 000

12. C — $25 000

• After revaluation, depreciation is based on the revalued amount.

• Revalued amount = $75 000

• Remaining useful life = 3 years

• Annual depreciation = 75 000 / 3

• = $25 000

13. B — $20 400

• Year 1 depreciation = 30% × 40 000 = $12 000

• Carrying value after year 1 = $28 000

• Year 2 depreciation = 30% × 28 000 = $8400

• Accumulated depreciation after 2 years = 12 000 + 8400

• = $20 400

14. B — $19 600

• Cost = $40 000

• Accumulated depreciation after 2 years = $20 400

• Carrying value = 40 000 – 20 400

• = $19 600

15. B — $13 500

• Machinery owned all year = 10% × 120 000 = $12 000

• Additional machinery bought 1 July = 10% × 30 000 × 6/12 = $1500

• Total depreciation = 12 000 + 1500

• = $13 500

16. B — $11 000

• Equipment owned all year = 20% × 50 000 = $10 000

• Equipment bought 1 October = 20% × 20 000 × 3/12 = $1000

• Total depreciation = 10 000 + 1000

• = $11 000

17. A — $8700

• Reducing balance is based on carrying value.

• Carrying value = 80 000 – 22 000 = $58 000

• Depreciation = 15% × 58 000

• = $8700

18. B — $18 000

• Carrying value = $24 000

• Depreciation = 25% × 24 000 = $6000

• New carrying value = 24 000 – 6000

• = $18 000

19. C — depreciation charge is usually equal each year

• Straight-line depreciation charges the same amount each year.

• It is based on cost minus residual value over useful life.

20. B — depreciation is based on the asset’s carrying value

• Reducing balance depreciation uses carrying value/net book value.

• The depreciation charge usually decreases each year.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. B — machine giving higher benefit in earlier years

• Reducing balance is suitable when an asset gives more benefit in earlier years.

• It charges higher depreciation early and lower depreciation later.

22. A — asset providing equal benefit over its life

• Straight-line is suitable when benefits are spread evenly over the asset’s life.

23. B — $48 000

• Annual depreciation = (75 000 – 15 000) / 5

• = $12 000

• Accumulated depreciation after 4 years = 12 000 × 4

• = $48 000

24. C — $27 000

• Cost = $75 000

• Accumulated depreciation after 4 years = $48 000

• Carrying value = 75 000 – 48 000

• = $27 000

25. A — $13 500

• Original annual depreciation = (100 000 – 10 000) / 9

• = $10 000

• Depreciation for 3 years = $30 000

• Carrying value after 3 years = 100 000 – 30 000 = $70 000

• Revised depreciation = (70 000 – 16 000) / 4

• = $13 500

26. A — $9000

• Depreciation for first 3 years = 10% × 100 000 × 3

• = $30 000

• Carrying value = 100 000 – 30 000 = $70 000

• Revised residual value = $25 000

• Remaining useful life = 5 years

• Revised annual depreciation = (70 000 – 25 000) / 5

• = $9000

27. A — profit overstated and non-current assets overstated

• Depreciation expense was not recorded.

• Expenses are understated.

• Profit is overstated.

• Accumulated depreciation is understated, so carrying value of non-current assets is overstated.

28. B — profit understated by $3000 and assets understated by $3000

• Depreciation charged = $12 000

• Correct depreciation = $9000

• Excess depreciation = $3000

• Profit is understated by $3000.

• Assets are understated by $3000.

29. B — profit understated by $7000

• Correct depreciation = $7000

• Charged twice = $14 000

• Excess depreciation = $7000

• Profit is understated by $7000

30. A — $3600

• Correct depreciation = 20% × 60 000 = $12 000

• Wrong depreciation = 20% × 42 000 = $8400

• Understated depreciation = 12 000 – 8400

• = $3600

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A — $8750

• Correct reducing balance depreciation:

  • carrying value = 80 000 – 35 000 = $45 000

  • depreciation = 25% × 45 000 = $11 250

• Wrong depreciation on cost:

  • 25% × 80 000 = $20 000

• Overstated = 20 000 – 11 250

• = $8750

32. B — debit depreciation expense, credit accumulated depreciation

• Depreciation expense increases = debit.

• Accumulated depreciation increases = credit.

33. B — accumulated depreciation

• Accumulated depreciation is a contra-asset.

• It normally has a credit balance.

34. B — income statement as an expense

• Depreciation is an expense.

• It is charged in the income statement.

35. A — deducted from non-current assets in the statement of financial position

• Accumulated depreciation reduces the carrying value of non-current assets.

• It is shown as a deduction from cost.

36. B — assets decrease and capital decreases

• Depreciation reduces carrying value of assets.

• It also reduces profit.

• Lower profit reduces capital/equity.

37. B — depreciation allocates the cost of an asset over its useful life

• Depreciation is not cash paid.

• It does not create a cash fund.

• It is an allocation of asset cost to accounting periods.

38. A — matching/accruals

• Depreciation matches the cost of using an asset with the revenue it helps generate.

• That is why it is linked with the matching/accruals concept.

39. B — 6 years

• Depreciable amount = 30 000 – 3000 = $27 000

• Annual depreciation = $4500

• Useful life = 27 000 / 4500

• = 6 years

40. B — $6000

• Total depreciation over useful life = annual depreciation × useful life

• = 8000 × 6 = $48 000

• Residual value = cost – total depreciation

• = 54 000 – 48 000

• = $6000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. B — $60 000

• Annual depreciation = 121/2% × 96 000

• = $12 000

• Depreciation for 3 years = 12 000 × 3 = $36 000

• Carrying value = 96 000 – 36 000

• = $60 000

42. B — $49 000

• Year 1 depreciation = 121/2% × 64 000 = $8000

• Carrying value after year 1 = $56 000

• Year 2 depreciation = 121/2% × 56 000 = $7000

• Carrying value after year 2 = 56 000 – 7000

• = $49 000

43. B — $18 750

• Original annual depreciation = (110 000 – 20 000) / 6

• = $15 000

• Depreciation for 2 years = $30 000

• Carrying value before revaluation = 110 000 – 30 000 = $80 000

• Revalued amount = $95 000

• Residual value = $20 000

• Remaining useful life = 4 years

• New annual depreciation = (95 000 – 20 000) / 4

• = $18 750

44. B — $31 000

• Revalued amount = $620 000

• Remaining useful life = 20 years

• No residual value

• Annual depreciation = 620 000 / 20

• = $31 000

45. A — $13 200

• Machine A carrying value = 40 000 – 10 000 = $30 000

• Depreciation on A = 20% × 30 000 = $6000

• Machine B carrying value = 60 000 – 24 000 = $36 000

• Depreciation on B = 20% × 36 000 = $7200

• Total depreciation = 6000 + 7200

• = $13 200

46. A — $81 000

• Depreciation on cost = 10% × 150 000 = $15 000

• Carrying value at start = 150 000 – 54 000 = $96 000

• Carrying value at end = 96 000 – 15 000

• = $81 000

47. B — $86 400

• Carrying value at start = 150 000 – 54 000 = $96 000

• Reducing balance depreciation = 10% × 96 000 = $9600

• Carrying value at end = 96 000 – 9600

• = $86 400

48. C — $7200

• Bought on 1 April.

• Year ends 31 March.

• Asset held for full 12 months.

• Depreciation = 20% × 36 000

• = $7200

49. B — $3600

• Bought on 1 October.

• Year ends 31 March.

• Asset held for 6 months.

• Annual depreciation = 20% × 36 000 = $7200

• Depreciation = 7200 × 6/12

• = $3600

50. B — $15 000

• Carrying value now = $70 000

• Residual value = $10 000

• Depreciable amount = 70 000 – 10 000 = $60 000

• Remaining useful life = 4 years

• Annual depreciation = 60 000 / 4

• = $15 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.