PRC-1 · Chapter 6 · Question 41 of 100
If the cost of a newly purchased machine wrongly included general maintenance costs, which of the following statements correctly reflects the impact of this error?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Depreciation expense for the year was overstated.
Explanation
By capitalizing maintenance costs, the depreciable base of the machine is artificially inflated. Consequently, applying the depreciation percentage to this higher base results in an overstated depreciation expense.
More Property, Plant and Equipment MCQs
- Q43Which of the following best describes 'Depreciation' in financial accounting?
- Q44A vehicle cost Rs. 600,000 and is depreciated at 25% reducing balance. What is the depreciation charge in Year 3?
- Q45If a non-current asset is destroyed by a fire and there is no insurance coverage, how is the disposal accounted for?
- Q46Which depreciation method naturally results in a higher tax deduction (and lower taxable profit) in the EARLY years of an asset's life?
- Q47When presenting the Statement of Financial Position, where should 'Property, Plant and Equipment' be located?