Chapter 9

Review Questions
3. These are alternative terms which are often used interchangeably to describe the figure
arrived at after taking the accumulated depreciation away from the historic cost.
5. An intangible asset is an item that meets the definition of an asset but doesnt
have any physical characteristics and is not held for investment purposes.
Examples are patents, trademarks, brand names and goodwill.
8. This should be recorded as a capital expenditure. It could be considered as part of
the cost to prepare the van for use. The alternative is that expenditure is capitalied
if it enhances the asset, increases performance or extends the useful life of the asset.
Problems
4. a !""# ### $ !%& ### ' !()& ###
b !""#,### as this is the fair value of the new machine.
6.
Plant 31 Dec 2008 2 000
+ New Plant 500
2 500
- Plant Sold (at cost) 400
= Plant 31 Dec 2009 2100
Accumulated De!ec"at"on 31 Dec
2008
#50
+ De!ec"at"on $%ense 500
1 250
- Accum De&n Plant sold 225
Accumulated De!ec"at"on 31 Dec
2009
1 025
Plant Sold (at cost) 400
- Accumulated De!ec"at"on 225
'a!!("n) Amount 1#5
*a"n on Sale 50
Sell"n) P!"ce 225
10.
Year Straight-line Units-of-
Production
Reducing
Balance
2002 105 000 131 250 22+ ++#
2003 105 000 105 000 #5 555
2004 105 000 #8 #50 12 ##8
,otal 315 000 315 000 315 000
'alculat"ons-
St!a").t-l"ne met.od-
(/340 000 0 /25 000) 1 3 = /105 000 eac. (ea!
2n"ts-o3-!oduct"on met.od-
(/340 000 0 /25 000) 1 18 000 .ou!s = /1#450 e! .ou!
2052- #500 .ou!s 6 /1#450 = /131 250
2053- +000 .ou!s 6 /1#450 = /105 000
2054- 4500 .ou!s 6 /1#450 = /#8 #50
Decl"n"n)-7alance met.od-
2052- /340 000 8 293 = /22+ +#8
2053- (/340 000 0 /22+ +#8) 8 293 = /#5 518
2054- (/340 000 0 (/22+ +#8 + /#5 518) 0 /25 000: = /12 804
: ca!!("n) ;alue s.ould not 7e !educed 7elow t.e !es"dual ;alue o3
/25 0004
Chapter 10
Review Questions
1. *ebt finance creates a present obligation and must be repaid. Interest is also
re+uired to be paid. E+uity finance does not create an obligation to repay for the
entity and payment of dividends is optional.
2. *rawings are the amount withdrawn from a business by a sole proprietor or a partner.
*ividends are amounts paid to shareholders in a company.
6. A lease is a contractual relationship between two parties in which the lessee en,oys the
right to use an asset in exchange for a series of lease payments to the lessor. Example-
a milk bar may lease refrigeration e+uipment from the manufacturer of that e+uipment
for the purposes of storing and selling froen goods.