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Chapter 11 Practice Questions (updated)

           1   Define the term Depreciation and Accumulated Depreciation.

           2   State two causes of depreciation.

           3   State the differences between the straight-line method and reducing balance method.
           4   Explain, with an accounting theory, why do businesses depreciate non-current assets.

           5   May Hwa Pte Ltd has been applying straight line method to its furniture assets for the past 5 years and
               the accountant is proposing to change the depreciation method to the reducing balance method in hope to
               improve profitability. Explain whether the accountant should proceed to change the depreciation method.
               Support your answers with a relevant accounting concept.

           6   Medusa runs R&P dental clinic.
               (a)  Explain two differences between capital and revenue expenditure.
               (b)   Indicate and explain the type of expenditure in each of the following:

                    (i)  cost of delivering dental equipment
                    (ii)  wages of staff operating dental equipment.

           7   Cheryl has a café business, and she has recently incurred some expenditures for her business and required
               some advice in classifying them.
               (a)  Identify the type of expenditure for each of the following items:
                    (i)  Purchase of laptop for office use.

                    (ii)  Repainting of the walls in the shop.
                    (iii)  Installation cost of the new coffee machine.
                    (iv)  Purchase of stationery.
               (b)  State and explain the accounting concept being applied in the classification of expenditure in part (a)
               (c)  If capital expenditure is wrongly classified as revenue expenditure, state the effect on the following:
                    (i)  Profit for the period

                    (ii)  Non-current Assets

           8   KayJ is a retailer selling smartphones and tablets.                                      Chapter 11

               (a)  State whether each of the following expenditures is a capital or revenue expenditure.
                    (i)  Purchase of motor vehicles for business use
                    (ii)  Paid the interest on loan for the purchase of motor vehicles.
                    (iii)  Purchase of smartphones as work phone for the employees.

                    (iv)  Purchase of smartphones for resale purposes.

            © GLM                                      Conceptual Learning and Understanding Principles of Accounts  177
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