Accounting 0452 · IGCSE · Accounting for depreciation and disposal of non-current assets

Accounting for depreciation and disposal of non-current assets — practice question

Mo is a farmer. He draws up his financial statements to 31 December each year. He uses his delivery vehicle to take farm produce to his customers. Mo charges depreciation on vehicles at 20% per annum by the reducing balance method. In the year of purchase he charges a full year’s depreciation, and in the year of disposal he charges no depreciation. On 31 March 2024, he sold his delivery vehicle for $2 900 and was paid by cheque. He had bought this delivery vehicle in June 2021 for $10 000.
(a)[3]

Calculate the accumulated depreciation on the delivery vehicle which Mo sold on 31 March 2024.

(b)[4]

Prepare the disposal account for the sale of the delivery vehicle on 31 March 2024.

(c)[2]

Calculate the amount which Mo will record in his delivery vehicle account for this transaction on 1 April 2024.

(d)[5]

Advise Mo whether or not he should open the shop. Justify your answer by providing advantages and disadvantages of opening the shop.

(e)[4]

Prepare Mo’s rental income account for the year ended 31 December 2024. Total the account and bring down the balance at 1 January 2025.

(f(i))[1]

State one reason why Mo’s gross margin is higher than Barry’s.

(f(ii))[1]

State one reason why Mo’s expenses are lower than Barry’s.

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