Accounting 9706 · AS & A Level · Preparation of financial statements

Preparation of financial statements — practice question

Consult Source A2 in the insert. Additional information: The $30000 repair and maintenance cost for the 5-year contract on the new machine was settled on 1 March 2021.
(a)[3]

Explain why a business may have to impair its non-current assets.

(b)[6]

Explain the extent to which the value of the diesel lorry should be impaired. Support your answer with calculations.

(c)[11]

Set out the non-current assets schedule in a layout suitable for inclusion in the notes to the financial statements for the year ended 31 December 2021. A total column is not needed.

(d)[5]

Advise the directors whether X Limited should, or should not, have entered into the contract. Justify your answer.

Worked solution & mark scheme

This 25-mark question has a full step-by-step worked solution and mark scheme. One marking point: Concept of prudence

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