CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded may
be different.

Coursebook answers
Most of the answers are in ‘outline’ form indicating the appropriate points and skills that learners need
to include in their answers. They provide the necessary guidance to allow learners to develop and extend
the points for a fuller answer that contains the relevant skills. In many instances, there may be other valid
approaches to answering the question.

Chapter 11
Accounting in context
Sunil’s new van
Learners’ answers may include:
• Sunil’s van would lose large amounts of value because:
• It will wear out, become less efficient and cost more in servicing and repairs.
• The number of km that it has travelled is a major influence on the resale value.
• The manufacturer will eventually bring out a newer model of the van.
• All of these factors will reduce the resale value of the van.
• These factors would certainly apply to most other non-current assets equipment or machinery.
There is also the possibility that the business might stop making a particular product or the market
for that product will change. In this case, specialist equipment might (if it cannot be adapted to
another use) change from being something valuable to being scrap metal – in which case, its value
will drop dramatically.
The same would be true if technology advanced and someone invented equipment or machinery that
produced the product quicker and at a lower cost.
• The matching concept states that any loss or expense is incurred in the same period as it helps to
make a profit. So the loss or expense should be accounted for when calculating profit. In addition, the
decrease in the value of the non-current asset should be shown in the statement of financial position
not least because it would be wrong to overstate the value of the business’s assets.

Activities
Activity 11.1
a Year Machine A ($12 000) Machine B ($16 000) Total
2018 40% × $12 000 = $4 800 (leaves $7 200) No depreciation $4 800
2019 40% × $7 200 = $2 880 (leaves $4 320) 40% × $16 000 = $6 400 (leaves $9 600) $9 280
2020 40% × $4 320 = $1 728 (leaves $2 592) 40% × $9 600 = $3 840 (leaves $5 760) $5 568

Cambridge International AS & A Level Accounting – Hopkins, Malpas, Randall & Seagrove
1 © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

Machinery at cost account

Debit Credit
$ $
15 Jan 18 Bank 12 000 31 Dec 18 Balance c/d 12 000
12 000 12 000

1 Jan 19 Balance b/d 12 000

13 Apr 19 Bank 16 000 31 Dec 19 Balance c/d 28 000
28 000 28 000

1 Jan 20 Balance b/d 28 000 31 Dec 20 Balance c/d 28 000

28 000 28 000

1 Jan 21 Balance b/d 28 000

Accumulated depreciation on machinery account

Debit Credit
$ $
31 Dec 18 Balance c/d 4 800 31 Dec 18 Statement of profit or loss 4 800
4 800 4 800

1 Jan 19 Balance b/d 4 800

31 Dec 19 Balance c/d 14 080 31 Dec 19 Statement of profit or loss 9 280
14 080 14 080

1 Jan 20 Balance b/d 14 080

31 Dec 19 Balance c/d 19 648 31 Dec 20 Statement of profit or loss 5 568
19 648 19 648

1 Jan 21 Balance b/d 19 648

b Statement of financial position at 31 December …

Cost Accumulated Net book
depreciation value
$ $ $
2018: Machinery 16 000 4 800 11 200
2019: Machinery 28 000 14 080 13 920
2020: Machinery 28 000 19 648 8 352

Activity 11.2
Year 1 40% × $18 000 = $7 200 (leaves $10 800)
Year 2 40% × $10 800 = $4 320 (leaves $6 480)
Year 3 40% × $6 480 = $2 592 (leaves $3 888) Total $14 112

Cambridge International AS & A Level Accounting – Hopkins, Malpas, Randall & Seagrove
2 © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

Motor vehicles at cost

Debit Credit
$ $
1 Jan Balance b/d (given) 42 900 30 Apr Disposals 18 000
30 Apr Balance c/d 24 900
42 900 42 900
1 May Balance b/d 24 900

Accumulated depreciation on motor vehicles

Debit Credit
$ $
30 Apr Disposals 14 112 1 Jan Balance b/d (given) 27 200
30 Apr Balance c/d 13 088
27 200 27 200
1 May Balance b/d 13 088

Disposals of motor vehicles

Debit Credit
$ $
30 Apr Motor vehicles at cost 18 000 30 Apr Accumulated depreciation 14 112
30 Apr Statement of profit or loss 512 30 Apr Bank (insurance company) 4 400
18 512 18 512

Activity 11.3
Machinery at cost
Debit Credit
$ $
1 Jan Balance b/d (given) 101 300 31 Mar Disposals (1) 31 700
31 Mar Disposals (3) trade-in [1] 5 000
31 Mar Bank (5) [1] 43 000 31 Mar Balance c/d 117 600
149 300 149 300
1 Apr Balance b/d 117 600
Note:
[1] The new machinery cost $48 000. The trade-in value of $5 000 left the business with $43 000 to pay.

Accumulated depreciation on machinery

Debit Credit
$ $
31 Mar Disposals (2) 29 500 1 Jan Balance b/d (given) 65 800
31 Mar Balance c/d 36 300
65 800 65 800
1 Apr Balance b/d 36 300

Cambridge International AS & A Level Accounting – Hopkins, Malpas, Randall & Seagrove
3 © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

Disposals of machinery
Debit Credit
$ $
31 Mar Machinery at cost (1) 31 700 31 Mar Accumulated depreciation (2) 29 500
31 Mar Statement of profit or loss (4) 2 800 31 Mar Equipment at cost (3) 5 000
34 500 34 500

Exam-style questions
1 B It will enable the business to match the asset’s loss in value to the periods in which that asset
helped to generate revenue.
2 $3 528
Year ended 31 December 2017: 30% × $24 000 = $7 200
Year ended 31 December 2018: 30% × $16 800 = $5 040
Year ended 31 December 2019: 30% × $11 760 = $3 528
3 $4 350
Net book value = 21 500 − 15 400 = $6 100
Proceeds = 6 100 − 1 750 = $4 350
4 a Different types of non-current asset lose value at different rates during their useful life or may give
different amounts of benefit at different stages of their useful life. For example:
• Items like fixtures and fittings may lose value at a constant rate and provide consistent
amounts of benefit – so the straight-line method might be more appropriate.
• Items like motor vehicles lose large amounts of value early in their useful lives – so the
reducing balance method might be most appropriate.
• Some equipment or machinery might be at its most efficient and provide most benefit early in
its useful life – so the reducing balance method might be most appropriate.

Motor vehicles at cost

Debit Credit
$ $
1 Jan Balance b/d 54 000 30 Jun Disposals 16 300
30 Jun Balance c/d 37 700
54 000 54 000
1 Jul Balance b/d 37 700

Provision for depreciation on motor vehicles

Debit Credit
$ $
30 Jun Disposals 14 800 1 Jan Balance b/d 37 200
30 Jun Balance c/d 22 400
37 200 37 200
1 Jan Balance b/d 22 400

Cambridge International AS & A Level Accounting – Hopkins, Malpas, Randall & Seagrove
4 © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ACCOUNTING: TEACHER'S RESOURCE

Disposals of motor vehicles

Debit Credit
$ $
30 Jun Motor vehicles at cost 16 300 30 Jun Provision for depreciation 14 800
30 Jun Statement of profit or loss 1 000 30 Jun Bank 2 500
17 300 17 300

Cambridge International AS & A Level Accounting – Hopkins, Malpas, Randall & Seagrove
5 © Cambridge University Press 2021