CIMA BA3 · Chapter 10
Non-current assets and depreciation MCQs with Answers
10 multiple-choice questions on Non-current assets and depreciation for CIMA BA3 Fundamentals of Financial Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A machine costs $48,000 and is expected to have a residual value of $6,000 at the end of its useful life of 6 years. What is the annual depreciation charge using the straight-line method?
- A) $6,000
- B) $7,000
- C) $8,000
- D) $9,000
Show answer & explanation
Answer: B) $7,000
Annual depreciation = (cost - residual value) / useful life = ($48,000 - $6,000) / 6 = $7,000.
Question 2
A vehicle costing $32,000 is depreciated at 25% a year using the reducing balance method. What is its carrying amount at the end of the third year?
- A) $4,500
- B) $8,000
- C) $13,500
- D) $18,000
Show answer & explanation
Answer: C) $13,500
Year 1: $32,000 x 75% = $24,000. Year 2: $24,000 x 75% = $18,000. Year 3: $18,000 x 75% = $13,500.
Question 3
A company with a 31 December year end buys a machine for $20,000 on 1 April 20X3. Depreciation is charged at 10% a year on a straight-line basis, pro rata on a monthly basis. What is the depreciation charge for 20X3?
- A) $500
- B) $1,500
- C) $1,667
- D) $2,000
Show answer & explanation
Answer: B) $1,500
Annual depreciation = $20,000 x 10% = $2,000. The machine is held for nine months (April to December), so the charge = $2,000 x 9/12 = $1,500.
Question 4
An asset was bought on 1 January 20X1 for $25,000 and depreciated straight-line over five years with no residual value. It was sold on 31 December 20X3 for $8,500. What is the profit or loss on disposal?
- A) Profit of $1,500
- B) Loss of $16,500
- C) Loss of $1,500
- D) Profit of $3,500
Show answer & explanation
Answer: C) Loss of $1,500
Annual depreciation = $25,000 / 5 = $5,000. Accumulated depreciation after three years = $15,000. Carrying amount = $25,000 - $15,000 = $10,000. Proceeds $8,500 - carrying amount $10,000 = loss of $1,500.
Question 5
A business buys a new van with a price of $30,000. It trades in an old van, which cost $18,000 and has accumulated depreciation of $11,400, receiving a part-exchange allowance of $5,000, and pays the balance of $25,000 in cash. Which of the following is correct?
- A) The new van is recorded at $30,000 and there is a loss on disposal of $1,600
- B) The new van is recorded at $25,000 and there is a loss on disposal of $1,600
- C) The new van is recorded at $30,000 and there is a profit on disposal of $1,600
- D) The new van is recorded at $25,000 and there is a loss on disposal of $6,600
Show answer & explanation
Answer: A) The new van is recorded at $30,000 and there is a loss on disposal of $1,600
The new van's cost is its full price of $30,000, settled by the part-exchange allowance of $5,000 plus cash of $25,000. The part-exchange allowance is the disposal proceeds of the old van. Carrying amount of the old van = $18,000 - $11,400 = $6,600. Loss on disposal = $6,600 - $5,000 = $1,600.
Question 6
A company revalues its land, which cost $200,000, to $340,000. What is the double entry to record the revaluation?
- A) Debit Land $140,000, Credit Profit or loss $140,000
- B) Debit Land $340,000, Credit Revaluation surplus $340,000
- C) Debit Revaluation surplus $140,000, Credit Land $140,000
- D) Debit Land $140,000, Credit Revaluation surplus $140,000
Show answer & explanation
Answer: D) Debit Land $140,000, Credit Revaluation surplus $140,000
The land is increased from $200,000 to $340,000, a gain of $140,000. Under IAS 16 a revaluation gain is recognised in other comprehensive income and accumulated in the revaluation surplus within equity, not in profit or loss.
Question 7
A building was bought for $500,000 and was being depreciated straight-line over 50 years with no residual value. After 10 years, when accumulated depreciation was $100,000, it was revalued to $600,000. Its remaining useful life is unchanged. What is the annual depreciation charge after the revaluation?
- A) $10,000
- B) $12,000
- C) $12,500
- D) $15,000
Show answer & explanation
Answer: D) $15,000
After 10 of 50 years, the remaining useful life is 40 years. Depreciation after revaluation = revalued amount / remaining useful life = $600,000 / 40 = $15,000 a year.
Question 8
Under IAS 38 Intangible Assets, which of the following may be recognised as an intangible asset if the relevant criteria are met?
- A) Research costs incurred to gain new scientific knowledge
- B) Development costs for a new product once technical feasibility and the intention and ability to complete and sell it can be demonstrated
- C) Internally generated brand names
- D) Staff training costs that improve employees' skills
Show answer & explanation
Answer: B) Development costs for a new product once technical feasibility and the intention and ability to complete and sell it can be demonstrated
Development expenditure is capitalised when the IAS 38 criteria are all met, including technical feasibility, intention and ability to complete and use or sell, probable future benefits, adequate resources and reliable measurement. Research costs are always expensed, and internally generated brands and training costs cannot be capitalised.
Question 9
Why is a non-current asset register reconciled regularly with the general ledger accounts and with a physical inspection of the assets?
- A) To check that recorded assets exist and that the ledger balances are complete and accurate
- B) To calculate the market value of each asset
- C) To avoid the need to charge depreciation
- D) To decide which assets should be revalued for tax purposes
Show answer & explanation
Answer: A) To check that recorded assets exist and that the ledger balances are complete and accurate
The asset register holds details of each asset. Reconciling it to the ledger and checking the assets physically are controls that confirm existence and completeness and detect loss or theft of assets.
Question 10
A company buys a machine for $45,000. It also pays delivery costs of $1,200, installation costs of $2,300, staff training costs of $900 and a first-year maintenance contract of $1,500. Under IAS 16 Property, Plant and Equipment, what is the cost of the machine?
- A) $45,000
- B) $48,500
- C) $49,400
- D) $50,900
Show answer & explanation
Answer: B) $48,500
Cost includes the purchase price and costs directly attributable to bringing the asset to working condition: $45,000 + delivery $1,200 + installation $2,300 = $48,500. Staff training and maintenance are revenue expenses.