Accounting 0452 · IGCSE · Accounting for depreciation and disposal of non-current assets
Accounting for depreciation and disposal of non-current assets — practice question
Ahmed runs a trading business and prepares his financial statements to 31 December each year.
He had some spare office space, so he chose to use part of it for inventory storage and to lease the remainder to Bilal.
Bilal began renting the office space from Ahmed on 1 January 2023. The yearly rental amount is $4800. In 2023, Bilal paid these rent amounts into Ahmed’s bank account:
1 April $3600
30 September $2400
Ahmed disposed of old office equipment for $1350 on 3 January 2023, selling it on credit to Rahat. The equipment had originally cost $3200 on 1 January 2021. Ahmed charges depreciation at 25% per annum by the reducing balance method. He does not charge depreciation in the year when the asset is sold.
(a)[3]
Prepare Ahmed’s rent receivable account for the year ended 31 December 2023. Balance the account and carry the balance down to 1 January 2024.
(b)[5]
Prepare the disposal of office equipment account.
(c)[3]
Complete the table by adding a tick (✓) to show whether each amount spent on the new inventory storage space is capital expenditure or revenue expenditure.
(d)[7]
Fill in the table below.
(e)[2]
Suggest two problems that might result from Ahmed’s lower inventory turnover rate.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.