Section: 20

Marks: 56
Subject: Introduction to Accounting
Time : 15 minutes
Teacher:Dawood Shahid
Test – 2 (Chapter. 6 Depreciation) September 13, 2022
CFE ID:
Name: __________________________________
____________________
1. According to IAS 16 - 'Property, Plant and Equipment', which TWO of the following
items can be capitalized
a) Initial operating losses whilst b) Cost of testing whether the asset
demand builds up works properly
c) Cost of training staff on the new d) Cost of preparing the site for
asset installation
2. Which one of the following statements best describes the 'carrying value' of an asset?
a) The cost of the asset less its b) The higher of the asset's value in
residual value use and its recoverable amount
c) The lower of the asset's NRV or its d) The amount at which the asset is
cost recognised in the balance sheet
after deducting any accumulated
depreciation.
3. Usman Ltd. is purchasing a second-hand grinding machine from a competitor who has gone
bankrupt. Usman Ltd. will incur the following costs:
i. Agreed price to be paid to vendor, Rs. 16,000
ii. Dismantling the machine at its current location, Rs. 1,300
iii. Transportation to Usman Ltd.’s factory, Rs. 700
iv. Machine refurbishment costs prior to re-installation, Rs. 350
v. Re-installation, Rs. 550
According to IAS 16 - 'Property, Plant and Equipment', the total included in non-current
assets (PPE) in respect of the machine should be:
a) Rs. 17,600 b) Rs. 18,900
c) Rs. 18,550 d) Rs. 16,550
4. The Rana Co. acquired a new industrial washing machine, the list price of which was Rs.
52,000. The supplier allowed a trade discount of Rs. 4,000 off the list price. On delivery,
the cost of installing the machine in its desired location was Rs. 950. According to IAS 16
- 'Property, Plant and Equipment', what is the cost of the machine to be capitalised?
a) Rs. 52,000 b) Rs. 48,950
c) Rs. 52,950 d) Rs. 56,950
5. The depreciation charge is required to be based on:
a) The profitability of the asset being b) A period not exceeding 5 years for
depreciated plant and machinery, and 20 years
for buildings and land
c) The replacement cost of the asset d) The expected useful life of the
being depreciated asset being depreciated
6. On 1 February 2018, a plant having a list price of Rs. 10,000,000 was acquired. A trade discount
of 5% was allowed on the list price. The plant was ready for use on 1 August 2018 after incurring
the following costs:

Rs. in '000
Freight charges 660
Consultant fees 540
Installation and testing 600
Administration and other general overheads 160
Staff training 120
Opening ceremony 100
2,180
AE depreciates plant and machinery at 20% per annum using the reducing balance method.
Required: Calculate Cost of Plant and Depreciation for the year 2018
a) Cost of plant Rs 11,420,000 and b) Cost of plant Rs 11,580,000 and
depreciation expense Rs 951,667 depreciation expense Rs 965,000
c) Cost of plant Rs 11,680,000 and d) Cost of plant Rs 11,300,000 and
depreciation expense Rs 973,333 depreciation expense Rs 941,667

7. You have recently been appointed as chief financial officer of Al-Hafeez Limited (AHL). While
finalizing the company’s financial statements for the year ended 31 December 2014, you have
observed the following issues:
Plant and equipment includes Machine A-31 at a carrying amount of Rs. 918,400 which was
fabricated in-house by AHL in February 2014 by using existing plant and machinery. The details
are as follows:
Rupees
Direct material and labour 656,000
Depreciation – existing plant and machinery 24,000
Administration costs 140,000
20% profit (normally charged to its customers) 164,000
984,000
Less: Depreciation for the year (10% of the cost for 8 months) (65,600)
Carrying value of the machine at year-end 918,400
Direct material includes material lost due to fire amounting to Rs. 40,000.
The fabricated machine was transferred and available for use on 1 March 2014 and was brought
into commercial production on 1 May 2014
a) Cost of Machine Rs 984,000 and b) Cost of Machine Rs 820,000 and
depreciation expense Rs 65,600 depreciation expense Rs 54,667
c) Cost of Machine Rs 640,000 and d) Cost of Machine Rs 656,000 and
depreciation expense Rs 53,333 depreciation expense Rs 43,733

Data for following three questions

The cost of a machine purchased by S. Yaseer Trading Company (Private) Limited on 1st April,
1992 is Rs. 750,000. It is estimated that the machine will have a Rs. 30,000 trade-in value at the
end of its service life. Its life is estimated at 6 years. Its working hours are estimated at 25,000, its
production is estimated at 400,000 units. During 1992, the machine was operated for 4200 hours
and produced 80,000 units.

8. Compute the depreciation on the machine for 1992 by service hours method;
 a) Depreciation expense Rs 205,714 b) Depreciation expense Rs 144,300
c) Depreciation expense Rs 120,960 d) Depreciation expense Rs 54,667

9. Compute the depreciation on the machine for 1992 by The productive-output method
a) Depreciation expense Rs 144,300 b) Depreciation expense Rs 54,667
c) Depreciation expense Rs 120,960 d) Depreciation expense Rs 54,667

10. Compute the depreciation on the machine for 1992 by The sum of the year's digits method
a) Depreciation expense Rs 144,300 b) Depreciation expense Rs 120,960
c) Depreciation expense Rs 120,960 d) Depreciation expense Rs 205,714