Chapter 4: Accounting for Depreciation and Bad Debts

Test Bank

Type: multiple choice question

Title: Chapter 04 Question 01

1) Rachel bought a motor vehicle for £25,000. The vehicle has an estimated useful life of 3 years and an estimated residual value of £2,500. If depreciation is to be provided on the straight-line basis, which of the following statements is true?

a. Depreciation will be provided at 10% on cost.

b. Depreciation will be provided at 37% on cost.

c. Depreciation will be provided at 33% on cost.

d. Depreciation will be provided at 30% on cost.

Type: multiple choice question

Title: Chapter 04 Question 02

2) Ross Ltd bought a machine for £120,000. It has an expected useful life of 5 years and a residual value of £10,000. Using straight-line depreciation, how much will the depreciation charge be for each year?

a. £110,000

b. £24,000

c. £26,000

d. £22,000

Type: multiple choice question

Title: Chapter 04 Question 03

3) The annual straight-line depreciation charge on an asset is calculated as follows:

a. Original cost less residual value, divided by the estimated useful life of the asset.

b. Original cost less estimated useful life of the asset, divided by residual value.

c. Original cost plus residual value, divided by the estimated useful life of the asset.

d. Residual value less estimated useful life, divided by original cost.

Type: multiple choice question

Title: Chapter 04 Question 04

4) Monica's trade receivables at 31 December were £35,000, including an amount of £3,000 owed by Chandler Ltd. However, she was notified that Chandler Ltd is being liquidated and that none of the debt owing to Monica will be received. Which of the following statements is true?

a. Monica’s trade receivables at 31 December should be shown on the statement of financial position at £35,000 and £3,000 charged to the statement of profit or loss as a bad debt.

b. Monica’s trade receivables at 31 December should be shown on the statement of financial position at £32,000 and no amount charged to the statement of profit or loss for bad debts.

c. Monica’s trade receivables at 31 December should be shown on the statement of financial position at £32,000 and £3,000 charged to the statement of profit or loss as a bad debt.

d. Monica’s trade receivables at 31 December should be shown on the statement of financial position at £35,000 and no amount charged to the statement of profit or loss for bad debts.

Type: multiple choice question

Title: Chapter 04 Question 05

5) A non-current asset was purchased for £21,000 on 1 January 2020. If it is depreciated using the reducing-balance basis at the rate of 40% per annum, the net book value of the asset at 31 December 2021 will be:

a. £4,200.

b. £7,560.

c. £5,040.

d. £12,600.

Type: multiple choice question

Title: Chapter 04 Question 06

6) Which one of the following is the correct statement?

a. There is no difference between bad debts and doubtful debts

b. Bad debts will be received in the long term while doubtful debts will be received in the short term.

c. A doubtful debt is unlikely to be received and has to be provided for.

d. If a business has written off all known bad debts, it will never need to create a provision for doubtful debts.

Type: multiple choice question

Title: Chapter 04 Question 07

7) Which of the following facts about depreciation is NOT true?

a. The profit for the year is reduced as a result of the depreciation charge.

b. Depreciation recognizes the fact that non-current assets have a finite useful life.

c. The accumulated (total) depreciation provided on non-current assets is deducted from their cost to arrive at the net book value of the asset.

d. The depreciation charge for the year is the amount paid out for the asset in that year.

Type: multiple choice question

Title: Chapter 04 Question 08

8) Phoebe bought a laptop computer for her business that cost £2,000 and it has a net book value of £1,200 after one year. If she sells the laptop for £700 at that time, the profit / (loss) on disposal would be:

a. The profit on disposal would be £500.

b. The profit on disposal would be £1,300.

c. The loss on disposal would be £500.

d. The loss on disposal would be £1,300.

Type: multiple choice question

Title: Chapter 04 Question 09

9) A business is said to be a ‘going concern’ if:

a. It is not expected to continue trading for more than a year.

b. It is not expected to incur losses in the future.

c. It is expected to continue trading for the foreseeable future.

d. It has incurred losses in the past.

Type: multiple choice question

Title: Chapter 04 Question 10

10) Joey's trade receivables at 31 December 2023 were £24,000 and this amount includes £1,200 owed by Zoom Ltd. Joey has been notified that Zoom Ltd is being liquidated and the amount of £1,200 owing to the business will not be paid. Which of the following statements is true?

a. Trade receivables on the statement of financial position at 31 December 2023 should be £22,800 and no bad debts need to be charged as an expense in the statement of profit or loss.

b. Trade receivables on the statement of financial position at 31 December should be £24,000 and no bad debts need to be charged as an expense in the statement of profit or loss.

c. Trade receivables on the statement of financial position at 31 December 2023 should be £22,800 and bad debts of £1,200 should be charged as an expense in the statement of profit or loss.

d. Trade receivables on the statement of financial position at 31 December 2023 should be £24,000 and bad debts of £1,200 should be charged as an expense in the statement of profit or loss.