These eleven questions cover the skills in depreciation and asset disposal: straight-line and reducing-balance charges, carrying amount, the disposal account, proceeds versus profit, and revised estimates. All businesses and figures are fictional and every amount is in RM.
Work each question on paper first, showing the base for each calculation. Then open the answer and compare the method as well as the final figure.
The percentage-base explorer helps with changing bases, and the double-entry and ledger trainer lets you check your postings. Log slips in the mistake log and retest queue and retry a fresh version a few days later.
Questions
1. A machine costs RM 45,000, has a residual value of RM 5,000 and a useful life of 8 years. Find the annual straight-line depreciation.
Show answer
Depreciable amount = 45,000 − 5,000 = RM 40,000. Annual charge = 40,000 ÷ 8 = RM 5,000.
2. Furniture costing RM 16,000 is depreciated at 12.5% of cost a year, with no residual value. Find the annual charge and the carrying amount after 3 years.
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Annual charge = 16,000 × 12.5% = RM 2,000. Accumulated depreciation after 3 years = 6,000. Carrying amount = 16,000 − 6,000 = RM 10,000.
3. Delima Salon buys salon chairs for RM 18,000. Residual value is RM 3,000 and the life is 5 years, straight-line. Write the Year 2 entry and show the statement of financial position extract at the end of Year 2.
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Annual charge = (18,000 − 3,000) ÷ 5 = RM 3,000.
Year 2 entry: debit depreciation expense RM 3,000, credit accumulated depreciation RM 3,000.
Accumulated depreciation after 2 years = 6,000.
| RM | |
|---|---|
| Chairs at cost | 18,000 |
| Less accumulated depreciation | (6,000) |
| Carrying amount | 12,000 |
4. A delivery bike costs RM 35,000 and is depreciated at 20% on the reducing balance. Show the charge and closing carrying amount for each of the first 3 years.
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| Year | Opening (RM) | Charge at 20% (RM) | Closing (RM) |
|---|---|---|---|
| 1 | 35,000 | 7,000 | 28,000 |
| 2 | 28,000 | 5,600 | 22,400 |
| 3 | 22,400 | 4,480 | 17,920 |
Check: accumulated depreciation = 7,000 + 5,600 + 4,480 = 17,080, and 35,000 − 17,080 = 17,920. Also 35,000 × 0.8³ = 35,000 × 0.512 = 17,920.
5. An asset costs RM 20,000. Compare the Year 2 charge using straight-line at 25% of cost with reducing balance at 25%.
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Straight-line: 20,000 × 25% = RM 5,000 every year, so Year 2 is RM 5,000.
Reducing balance: Year 1 charge = 5,000, carrying amount 15,000. Year 2 charge = 15,000 × 25% = RM 3,750.
Straight-line gives RM 1,250 more in Year 2.
6. A machine bought for RM 8,000 is depreciated on the reducing balance. The Year 1 charge is RM 2,000. Find the rate and the Year 2 charge.
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Rate = 2,000 ÷ 8,000 = 0.25 = 25%. Carrying amount after Year 1 = 6,000. Year 2 charge = 6,000 × 25% = RM 1,500.
7. Hassan Logistics sells a van for RM 14,000 into the bank. The van cost RM 42,000 and its accumulated depreciation is RM 27,000. Prepare the disposal account and state the profit or loss.
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Carrying amount = 42,000 − 27,000 = RM 15,000. Proceeds 14,000 are lower, so loss of RM 1,000.
Disposal account
| Debit | RM | Credit | RM |
|---|---|---|---|
| Van (cost) | 42,000 | Accumulated depreciation | 27,000 |
| Bank | 14,000 | ||
| Loss on disposal | 1,000 | ||
| 42,000 | 42,000 |
Both sides total RM 42,000.
8. Equipment cost RM 18,000 and is depreciated at 10% of cost a year, straight-line, with no residual value. It is sold at the end of Year 4, after Year 4 depreciation, for RM 11,500 cash. Find the profit or loss and show the disposal account.
Show answer
Annual charge = 18,000 × 10% = RM 1,800. Accumulated depreciation after 4 years = 7,200. Carrying amount = 18,000 − 7,200 = RM 10,800. Proceeds 11,500 − 10,800 = profit of RM 700.
Disposal account
| Debit | RM | Credit | RM |
|---|---|---|---|
| Equipment (cost) | 18,000 | Accumulated depreciation | 7,200 |
| Profit on disposal | 700 | Bank | 11,500 |
| 18,700 | 18,700 |
9. A business sells a machine on credit for RM 5,400. It cost RM 14,000 and its accumulated depreciation is RM 7,900. How much cash is received today, and what is the profit or loss on disposal?
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Carrying amount = 14,000 − 7,900 = RM 6,100. Proceeds 5,400 are lower, so loss of RM 700. Cash received today is RM 0, because the sale is on credit. RM 5,400 is due from the buyer later.
Disposal account: debit 14,000. Credits 7,900 + 5,400 + 700 = 14,000.
10. A machine cost RM 27,000 with a residual value of RM 3,000 and a life of 6 years, straight-line. After 3 years, the business expects it to last 5 more years, with the residual value unchanged. Find the new annual charge and the effect on yearly profit.
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Original charge = (27,000 − 3,000) ÷ 6 = RM 4,000. Accumulated depreciation after 3 years = 12,000. Carrying amount = 15,000. New charge = (15,000 − 3,000) ÷ 5 = 12,000 ÷ 5 = RM 2,400. The charge falls by 4,000 − 2,400 = 1,600, so yearly profit is RM 1,600 higher. Earlier years are not restated.
11. A student answers: “Equipment cost RM 20,000 and was sold for RM 9,000, so there was a loss of RM 11,000.” The accumulated depreciation was RM 12,000. Find the error and give the correct result.
Show answer
The student compared proceeds with cost, ignoring the accumulated depreciation. Carrying amount = 20,000 − 12,000 = RM 8,000. Proceeds 9,000 − 8,000 = profit of RM 1,000. The RM 12,000 was already charged as an expense in earlier years.
If you got these wrong
Match the type of slip to the lesson that fixes it.
| What went wrong | Questions | Go to |
|---|---|---|
| Forgot the residual value, or used the wrong rate or life | 1, 2, 3 | Calculate straight-line depreciation |
| Applied the percentage to cost every year, or lost a year in the table | 4, 5, 6 | Calculate reducing-balance depreciation |
| Disposal account would not balance, or left accumulated depreciation open | 7, 8 | Record a disposal with accumulated depreciation |
| Mixed up cash received with profit, or compared proceeds with cost | 9, 11 | Distinguish proceeds from profit on disposal |
| Restated old years, or divided cost by the remaining life | 10 | Explain the effect of changing an estimate |
If a question was right but slow, try again with only the table and the final figure, then compare with the answer. The cash versus profit bridge is also useful for Questions 9 and 11.
Students who find that the same type of slip keeps returning can book a paid trial lesson in online one-to-one Accounting tuition. The next module is accruals and prepayments.