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 vehicle breakdown recovery business. He owns one recovery vehicle and has given the following details about it: Date of purchase: 1 October 2021 Purchase price: $80000 paid by bank transfer Estimated residual value: $30000 Estimated working life: 5 years Ahmed gives a full year’s depreciation in the year the vehicle is bought but records no depreciation in the year it is sold. His vehicles are depreciated by the reducing balance method at 20% per annum. The recovery vehicle is now 4 years old and is no longer dependable. Ahmed thought about replacing it on 31 August 2025. Ahmed’s financial year ends on 30 April.
(a)[4]

Calculate the depreciation charge for every year of the recovery vehicle’s working life, assuming Ahmed replaces the recovery vehicle on 31 August 2025. Show your workings.

(b)[2]

State one advantage and one disadvantage of the reducing balance method of depreciation.

(c)[3]

Calculate the profit or loss on disposal if Ahmed had sold his recovery vehicle to the local dealer on 1 February 2025. Show your workings, and state whether it would have been a ‘profit’ or ‘loss’.

(d(i))[2]

Prepare Ahmed’s motor vehicles account for the year ended 30 April 2025 if Ahmed had sold his recovery vehicle to the local dealer on 1 February 2025.

(d(ii))[4]

Prepare Ahmed’s disposal of motor vehicles account for the year ended 30 April 2025 if Ahmed had sold his recovery vehicle to the local dealer on 1 February 2025.

(e)[5]

Advise Ahmed whether he should buy this new recovery vehicle. Justify your answer by providing advantages and disadvantages of buying the new recovery vehicle.

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