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A Level Accounting (9706)•9706/12/M/J/19
Question 4 from 9706/12/M/J/19

Explanation

Calculate depreciation using change in net book value Steps:

  • Compute NBV of disposed vehicle: sale price - profit = 24,000−24,000 - 24,000−2,000 = $22,000.
  • Calculate net addition before depreciation: opening NBV + purchases - disposed NBV = 398,000+398,000 + 398,000+195,000 - 22,000=22,000 = 22,000=571,000.
  • Depreciation charge = net addition before depreciation - closing NBV = 571,000−571,000 - 571,000−480,000 = $91,000. Why C is correct:
  • Depreciation equals the amount needed to reduce the pre-depreciation NBV to the reported closing NBV, per the fixed asset accounting equation: closing NBV = (opening NBV + additions - disposed NBV) - depreciation. Why the others are wrong:
  • A/B: Likely from miscalculating disposed NBV as 16,000/16,000/16,000/15,000 (e.g., arithmetic error in profit adjustment).
  • D: From ignoring disposal entirely (additions - increase in NBV ≈ 195,000−195,000 - 195,000−92,000 + error = overstatement).

Final answer: C

Topic: Accounting for non-current assets

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