Exam 8: Non-Current Assets, Fixed Assets, and Depreciation

The cost of getting a piece of machinery delivered and installed should never be included in the asset figure included in the statement of financial position.

Mike ran a chauffeur driven limousine business and had fixed assets consisting of four cars all bought at the same time with a carrying value of £88000. He reckons these will last three years and then be scrapped. The accumulated depreciation at the start of the year was £44000. Six months into the year one of his drivers wrote off a car and the insurance company paid out £20000 to settle the claim. He replaced the car immediately with a better model costing £39000. His policy as regards depreciation is to use straight line depreciation. What is the charge for the year?

Jackie had the following transactions in the year. Put £180000 of her own money into the business bank account. Took out a 40 year lease on the premises at a cost of £80000, bought fixtures and fittings or £12000 which she thinks will last four years and then be worth nothing and a car for £15000 which she will use for three years and then sell or an estimated £3000. All assets are to be depreciated or amortised over their useful lives using straight line depreciation. - What is the carrying value of Jackie's fixed assets and how much is in the bank account at the end of the year?

When we make a profit on the sale of an asset this is shown in the cash flow statement.

Jackie had the following transactions in the year. Put £180000 of her own money into the business bank account. Took out a 40 year lease on the premises at a cost of £80000, bought fixtures and fittings or £12000 which she thinks will last four years and then be worth nothing and a car for £15000 which she will use for three years and then sell or an estimated £3000. All assets are to be depreciated or amortised over their useful lives using straight line depreciation. What should the charge to the income statement be in total?

Depreciation is a precise measure of the wearing out of an asset over a period of time.

Included in Leonie’s fixed assets was a piece of machinery which cost £68 000 and on which depreciation of £32 000 had been charged. This was sold during the year for £28 000. - what would be the effect, if any, on the income statement and the cash flow statement?

If the depreciation charge is reduced that will improve the cash flow of the business.

The rate of depreciation is always higher when the reducing balance method is used.

When we sell a fixed asset for more that its carrying value it increases the overall profit.

Robin’s business had total assets at the start of the year amounting to £140 000 of which £80 000 related to current assets. Robin disposed of a fixed asset which had been purchased for £30 000 and on which £16 000 depreciation had been charged for £15 000 and bought a replacement asset for £26 000. He charged £11 000 depreciation on his assets in the year. - what would be the effect of all the transactions during the year on total profit and on the cash flow statement?

Reducing balance depreciation charges more as an expense in the early years than in later years.

Depreciation will always provide enough money to replace an asset.

Robin's business had total assets at the start of the year amounting to £140000 of which £80000 related to current assets. Robin disposed of a fixed asset which had been purchased for £30000 and on which £16000 depreciation had been charged for £15000 and bought a replacement asset for £26000. He charged £11000 depreciation on his assets in the year. What is the fixed asset carrying amount at the end of the year?

Depreciation only affects the income statement.

Included in Leonie's fixed assets was a piece of machinery which cost £68000 and on which depreciation of £32000 had been charged. This was sold during the year for £28000. How would this be recorded in the statement of financial position?

Fixed assets are normally classified as non-current assets.

Donna had been in the taxi business for two years and had three cars which were all one year old at the start of the current year and which originally cost £38000. She depreciates her cars using the reducing balance method at a rate of 40% -In the case of Donna's business what was the carrying amount in respect of the cars at the start and end of the current year?

Donna had been in the taxi business for two years and had three cars which were all one year old at the start of the current year and which originally cost £38000. She depreciates her cars using the reducing balance method at a rate of 40%. What is the depreciation charge for the current year?