Non-current assets, depreciation methods, disposal of assets, accumulated depreciation, profit/loss on disposal

1. A machine costing $36 000 was bought on 1 July. It has an estimated residual value of $4000 and useful life of 4 years. The financial year ends on 31 December and depreciation is charged monthly using the straight-line method. What is the depreciation charge for the first year?

A $4000
B $4500
C $8000
D $9000

2. Equipment costing $50 000 is depreciated at 20% per annum using the reducing balance method. What is the accumulated depreciation after 3 full years?

A $20 000
B $24 400
C $25 600
D $30 000

3. A motor vehicle costing $24 000 was bought on 1 April. Depreciation is charged at 20% per annum on cost, proportionate to time. The year ends on 31 December. What is the carrying amount at the year-end?

A $19 200
B $20 400
C $21 600
D $22 200

4. A machine costing $30 000 had accumulated depreciation of $18 000 when it was sold for $7500. What was the result on disposal?

A Profit $4500
B Profit $10 500
C Loss $4500
D Loss $10 500

5. A vehicle costing $40 000 had accumulated depreciation of $26 000. It was traded in for a new vehicle costing $60 000. The trade-in allowance was $16 000 and the balance was paid by cheque. What was the profit or loss on disposal of the old vehicle?

A Profit $2000
B Loss $2000
C Profit $16 000
D Loss $44 000

6. An asset costing $20 000 with accumulated depreciation of $15 000 was sold for $6000. What entry is made for the profit or loss on disposal?

A Debit disposal $1000, credit income statement $1000
B Debit income statement $1000, credit disposal $1000
C Debit disposal $5000, credit income statement $5000
D Debit income statement $6000, credit disposal $6000

7. A machine cost $42 000. It is depreciated by the straight-line method over 5 years with an estimated residual value of $7000. After 2 years, what is its carrying amount?

A $14 000
B $21 000
C $28 000
D $35 000

8. A machine costing $80 000 is depreciated at 25% per annum using the reducing balance method. What is the depreciation charge for the second year?

A $15 000
B $20 000
C $25 000
D $35 000

9. At the start of the year, accumulated depreciation was $27 000. During the year, an asset with accumulated depreciation of $8000 was sold. Depreciation for the year was $5000. What was the closing accumulated depreciation?

A $14 000
B $24 000
C $30 000
D $40 000

10. Which double entry records depreciation for the year?

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

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. Which statement about depreciation is correct?

A It records the fall in market value of an asset each year.
B It spreads the cost of a non-current asset over its useful life.
C It creates cash for replacing the asset.
D It is charged only when an asset is sold.

12. Repairs costing $5000 were wrongly debited to the machinery account. No depreciation is to be considered. What was the effect?

A Profit understated and assets understated by $5000
B Profit overstated and assets overstated by $5000
C Profit understated and liabilities overstated by $5000
D Profit overstated and assets understated by $5000

13. Repairs costing $2000 were wrongly treated as capital expenditure and depreciated at 10% per annum. What was the effect on profit and non-current assets for the year?

A Profit overstated by $1800 and non-current assets overstated by $1800
B Profit understated by $1800 and non-current assets understated by $1800
C Profit overstated by $2000 and assets overstated by $2000
D Profit understated by $200 and assets understated by $200

14. An asset costing $10 000 had accumulated depreciation of $6000. It was sold for $5500 at the start of the year. What was the result on disposal?

A Profit $1500
B Loss $1500
C Profit $5500
D Loss $4000

15. A machine costing $80 000 is depreciated at 25% per annum on cost. It is sold at the end of the third year for $22 000. Depreciation is charged in the year of disposal. What is the profit or loss on disposal?

A Profit $2000
B Loss $2000
C Profit $17 000
D Loss $38 000

16. Equipment costing $48 000 was bought on 1 April 2024. It is depreciated at 25% per annum using the reducing balance method, charged monthly. The year ends on 31 December. What is the carrying amount at 31 December 2025?

A $27 000
B $29 250
C $30 000
D $36 000

17. A vehicle cost $90 000 and had an estimated residual value of $10 000. Annual depreciation using the straight-line method is $16 000. What is the estimated useful life?

A 4 years
B 5 years
C 6 years
D 8 years

18. Accumulated depreciation at the start of the year was $12 000. During the year, an asset with accumulated depreciation of $3600 was disposed of. Closing accumulated depreciation was $15 400. What was the depreciation charge for the year?

A $200
B $3400
C $7000
D $31 000

19. A machine costing $14 000 had accumulated depreciation of $9800. It was sold for $3000. What amount is transferred to the income statement?

A $1200 loss
B $1200 profit
C $4200 loss
D $11 000 profit

20. Which effect does a profit on disposal of a non-current asset have?

A It decreases expenses and decreases assets.
B It increases income/profit and is added to the disposal account’s debit side.
C It increases profit and reduces the net cost of using non-current assets.
D It increases sales revenue and gross profit.

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. Vehicles costing $60 000 are depreciated at 20% reducing balance. Equipment costing $25 000 is depreciated by straight-line over 5 years with residual value $5000. What is the total depreciation charge for the year?

A $12 000
B $14 000
C $16 000
D $17 000

22. An asset costing $18 000 with accumulated depreciation of $12 000 was sold for $4000. The book-keeper debited bank and credited sales with $4000, but made no disposal entries. What was the effect on total profit?

A Profit overstated by $2000
B Profit overstated by $6000
C Profit understated by $2000
D Profit understated by $6000

23. Which item should be included in the cost of a machine bought for use in the business?

A Annual repair cost
B Delivery and installation cost
C Staff training after installation
D Insurance for the first year of use

24. Which transaction is capital expenditure?

A Repainting office walls
B Replacing a broken tyre on a delivery van
C Buying a new machine for production
D Paying annual road tax for a motor vehicle

25. An asset costing $50 000 with accumulated depreciation of $30 000 was sold for $18 000. The cost and proceeds were entered in the disposal account, but the accumulated depreciation was not transferred. What was the effect on profit?

A Profit overstated by $30 000
B Profit understated by $30 000
C Profit overstated by $18 000
D Profit understated by $2000

26. Depreciation of $3200 was not recorded at the year-end. What was the effect?

A Profit overstated and non-current assets overstated by $3200
B Profit understated and non-current assets understated by $3200
C Profit overstated and liabilities understated by $3200
D Profit understated and current assets overstated by $3200

27. Which depreciation method charges the same amount each year if estimates remain unchanged?

A Reducing balance method
B Revaluation method
C Straight-line method
D Disposal method

28. Which statement about the reducing balance method is correct?

A It charges equal depreciation every year.
B It usually charges more depreciation in earlier years than later years.
C It ignores accumulated depreciation.
D It is used only when an asset has no residual value.

29. At the start of the year, non-current assets at cost were $100 000 and accumulated depreciation was $30 000. During the year, additions were $20 000. Assets costing $15 000 with accumulated depreciation of $10 000 were sold. Depreciation for the year was $12 000. What was the carrying amount at the end of the year?

A $58 000
B $63 000
C $73 000
D $105 000

30. A machine costing $25 000 had accumulated depreciation of $19 000. It was sold at a loss of $1500. What were the disposal proceeds?

A $4500
B $6000
C $7500
D $20 500

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.

31. Equipment costing $27 000 was bought on 1 October. It has an estimated residual value of $3000 and useful life of 6 years. The financial year ends on 31 March. Depreciation is charged monthly. What is the first year’s depreciation?

A $1000
B $2000
C $3000
D $4000

32. A machine costing $24 000 is depreciated at 30% per annum using reducing balance. What is its carrying amount after 2 full years?

A $9600
B $11 760
C $12 240
D $16 800

33. Which concept is mainly applied when depreciation is charged over the useful life of a non-current asset?

A Matching/accruals concept
B Business entity concept
C Realisation concept only
D Historical cost concept only

34. Installation cost of machinery, $1200, was wrongly treated as repairs. No depreciation is considered. What was the effect?

A Profit overstated and assets overstated by $1200
B Profit understated and assets understated by $1200
C Profit overstated and liabilities understated by $1200
D Profit understated and assets overstated by $1200

35. A machine had a list price of $20 000. Trade discount was 10%. Delivery cost was $800, installation cost was $1200, and the first year’s maintenance cost was $600. What amount should be capitalised as the machine’s cost?

A $18 000
B $20 000
C $20 600
D $22 600

36. A delivery van was bought for $18 000. The business also paid delivery cost of $700, annual insurance of $900 and road tax of $400. What amount should be recorded as the cost of the van?

A $18 000
B $18 700
C $19 600
D $20 000

37. A machine costing $36 000 was bought on 1 April 2023. Depreciation is 20% per annum using reducing balance and charged monthly. The year ends on 31 March. The machine was sold on 30 September 2025 for $18 000. What was the profit or loss on disposal?

A Profit $2736
B Loss $2736
C Profit $5040
D Loss $5040

38. A machine costing $30 000 with accumulated depreciation of $24 000 was scrapped for no proceeds. Removal costs of $400 were paid by cheque. What was the loss on disposal?

A $5600
B $6000
C $6400
D $24 400

39. If depreciation is charged at too low a rate, what is the effect?

A Profit understated and carrying amount understated
B Profit overstated and carrying amount overstated
C Profit understated and accumulated depreciation overstated
D Profit overstated and carrying amount understated

40. Where is accumulated depreciation shown?

A As an expense in the income statement only
B Deducted from non-current assets in the statement of financial position
C Added to non-current assets in the statement of financial position
D As revenue in the income statement

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. Which item is not normally entered in a disposal account?

A Original cost of asset sold
B Accumulated depreciation on asset sold
C Disposal proceeds
D Depreciation on assets still owned

42. A machine cost $10 000, had residual value of $1000 and useful life of 5 years. What is the annual straight-line depreciation?

A $1800
B $2000
C $2200
D $9000

43. Equipment bought on credit for $8000 was completely omitted from the books. Ignoring depreciation, what was the effect?

A Non-current assets understated and liabilities understated
B Non-current assets overstated and liabilities overstated
C Profit understated and liabilities overstated
D Profit overstated and assets overstated

44. An old machine was sold on credit for $2400. Which entry records the proceeds?

A Debit sales, credit disposal
B Debit trade receivable, credit disposal
C Debit disposal, credit trade receivable
D Debit bank, credit disposal

45. Which double entry records a loss on disposal of a non-current asset?

A Debit disposal, credit income statement
B Debit income statement, credit disposal
C Debit accumulated depreciation, credit income statement
D Debit disposal, credit accumulated depreciation

46. Opening carrying amount of non-current assets was $50 000. Additions were $15 000. An asset with a carrying amount of $6000 was sold. Depreciation for the year was $8000. What was the closing carrying amount?

A $43 000
B $51 000
C $57 000
D $67 000

47. Which balance is normally shown by an accumulated depreciation account?

A Debit balance
B Credit balance
C No balance
D Bank overdraft balance

48. A machine costing $100 000 is depreciated at 10% per annum using reducing balance. It is sold after 2 full years for $75 000. No depreciation is charged in the year of sale. What is the result on disposal?

A Profit $6000
B Loss $6000
C Profit $15 000
D Loss $25 000

49. A machine cost $30 000 and has residual value of $5000. Annual straight-line depreciation is $5000. What is the estimated useful life?

A 4 years
B 5 years
C 6 years
D 7 years

50. Which statement about the statement of financial position is correct?

A Non-current assets are shown at original cost only.
B Non-current assets are shown at cost less accumulated depreciation.
C Accumulated depreciation is shown as a current liability.
D Depreciation is added to capital because it is not paid in cash.

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
   Annual depreciation = (36 000 − 4000) / 4 = 8000
   Bought on 1 July, so 6 months depreciation = 8000 × 6/12 = $4000

2. B
   Year 1 depreciation = 10 000, carrying amount = 40 000
   Year 2 depreciation = 8000, carrying amount = 32 000
   Year 3 depreciation = 6400
   Accumulated depreciation = 10 000 + 8000 + 6400 = $24 400

3. B
   Annual depreciation = 20% × 24 000 = 4800
   For 9 months = 4800 × 9/12 = 3600
   Carrying amount = 24 000 − 3600 = $20 400

4. C
   Carrying amount = 30 000 − 18 000 = 12 000
   Sold for 7500
   Loss = 12 000 − 7500 = $4500

5. A
   Carrying amount = 40 000 − 26 000 = 14 000
   Trade-in allowance = 16 000
   Profit = 16 000 − 14 000 = $2000

6. A
   Carrying amount = 20 000 − 15 000 = 5000
   Sold for 6000, so profit = 1000
   Profit on disposal: debit disposal $1000, credit income statement $1000

7. C
   Annual depreciation = (42 000 − 7000) / 5 = 7000
   After 2 years depreciation = 14 000
   Carrying amount = 42 000 − 14 000 = $28 000

8. A
   Year 1 depreciation = 25% × 80 000 = 20 000
   Carrying amount after year 1 = 60 000
   Year 2 depreciation = 25% × 60 000 = $15 000

9. B
   Closing accumulated depreciation = 27 000 − 8000 + 5000 = $24 000

10. B
    Depreciation is an expense, and accumulated depreciation increases.
    Debit depreciation expense, credit accumulated depreciation.

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
    Depreciation spreads the cost of a non-current asset over its useful life. It is not about exact market value and does not create cash.

12. B
    Repairs should be an expense. If debited to machinery, expenses are understated, assets overstated, and profit overstated.

13. A
    Correct expense should be $2000 repairs.
    Wrong expense recorded = depreciation 10% × 2000 = $200
    Profit overstated = 2000 − 200 = $1800
    Asset also overstated by $1800.

14. A
    Carrying amount = 10 000 − 6000 = 4000
    Sold for 5500
    Profit = $1500

15. A
    Depreciation per year = 25% × 80 000 = 20 000
    After 3 years accumulated depreciation = 60 000
    Carrying amount = 20 000
    Sold for 22 000
    Profit = $2000

16. B
    2024 depreciation = 48 000 × 25% × 9/12 = 9000
    Carrying amount at 31 Dec 2024 = 39 000
    2025 depreciation = 25% × 39 000 = 9750
    Carrying amount at 31 Dec 2025 = 39 000 − 9750 = $29 250

17. B
    Depreciable amount = 90 000 − 10 000 = 80 000
    Useful life = 80 000 / 16 000 = 5 years

18. C
    Closing accumulated depreciation = Opening accumulated depreciation − depreciation on asset disposed + depreciation charge
    15 400 = 12 000 − 3600 + depreciation charge
    Depreciation charge = $7000

19. A
    Carrying amount = 14 000 − 9800 = 4200
    Sold for 3000
    Loss = 4200 − 3000 = $1200

20. B
    Profit on disposal is debited to the disposal account and credited to the income statement, increasing profit.

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. C
    Vehicles depreciation = 20% × 60 000 = 12 000
    Equipment depreciation = (25 000 − 5000) / 5 = 4000
    Total depreciation = $16 000

22. B
    Correct result should be loss = carrying amount 6000 − proceeds 4000 = $2000 loss.
    Wrong entry credited sales with $4000, increasing profit by $4000 instead.
    Total profit overstated = 4000 + 2000 = $6000

23. B
    Delivery and installation costs are included because they are necessary to bring the machine into use.

24. C
    Buying a new machine is capital expenditure because it gives long-term benefit.

25. B
    Correct loss = 50 000 − 30 000 − 18 000 = $2000
    If accumulated depreciation is not transferred, loss appears as 50 000 − 18 000 = $32 000
    Profit understated by 30 000.

26. A
    Omitting depreciation understates expenses, so profit is overstated. Accumulated depreciation is understated, so non-current assets are overstated.

27. C
    Straight-line depreciation charges the same amount each year if cost, residual value and useful life remain unchanged.

28. B
    Reducing balance charges higher depreciation in earlier years because depreciation is calculated on the carrying amount.

29. C
    Cost at end = 100 000 + 20 000 − 15 000 = 105 000
    Accumulated depreciation at end = 30 000 − 10 000 + 12 000 = 32 000
    Carrying amount = 105 000 − 32 000 = $73 000

30. A
    Carrying amount = 25 000 − 19 000 = 6000
    Loss = 1500
    Proceeds = 6000 − 1500 = $4500

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. B
    Annual depreciation = (27 000 − 3000) / 6 = 4000
    Bought on 1 October and year ends 31 March, so 6 months:
    4000 × 6/12 = $2000

32. B
    Year 1 depreciation = 30% × 24 000 = 7200
    Carrying amount = 16 800
    Year 2 depreciation = 30% × 16 800 = 5040
    Carrying amount = 16 800 − 5040 = $11 760

33. A
    Depreciation applies the matching/accruals concept by matching asset cost with the periods benefiting from the asset.

34. B
    Installation cost should be capitalised. Treating it as repairs overstates expenses, so profit is understated and assets are understated.

35. B
    Cost after trade discount = 20 000 − 10% = 18 000
    Add delivery = 800
    Add installation = 1200
    Capitalised cost = $20 000
    Maintenance is revenue expenditure.

36. B
    Cost of van = purchase price + delivery cost
    = 18 000 + 700 = $18 700
    Insurance and road tax are revenue expenses.

37. B
    Year 1 depreciation = 20% × 36 000 = 7200
    Carrying amount = 28 800
    Year 2 depreciation = 20% × 28 800 = 5760
    Carrying amount = 23 040
    6 months depreciation to disposal = 20% × 23 040 × 6/12 = 2304
    Carrying amount at disposal = 20 736
    Sold for 18 000
    Loss = $2736

38. C
    Carrying amount = 30 000 − 24 000 = 6000
    No proceeds, plus removal costs $400
    Loss = 6000 + 400 = $6400

39. B
    Too little depreciation means expenses are understated, profit is overstated, accumulated depreciation is understated and carrying amount is overstated.

40. B
    Accumulated depreciation is deducted from non-current assets in the statement of financial position.

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. D
    Depreciation on assets still owned is not entered in the disposal account. Disposal account only deals with the asset sold.

42. A
    Annual depreciation = (10 000 − 1000) / 5 = $1800

43. A
    Equipment bought on credit omitted means non-current assets and liabilities are both understated.

44. B
    Old machine sold on credit:
    Debit trade receivable, credit disposal.

45. B
    Loss on disposal:
    Debit income statement, credit disposal.

46. B
    Closing carrying amount = opening carrying amount + additions − carrying amount sold − depreciation
    = 50 000 + 15 000 − 6000 − 8000
    = $51 000

47. B
    Accumulated depreciation normally has a credit balance.

48. B
    After year 1: carrying amount = 90 000
    After year 2: carrying amount = 81 000
    Sold for 75 000
    Loss = $6000

49. B
    Depreciable amount = 30 000 − 5000 = 25 000
    Useful life = 25 000 / 5000 = 5 years

50. B
    Non-current assets are shown at cost less accumulated depreciation. That carrying amount is the exam-safe answer.

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.