Daphne buys a non-current asset for $10000. It has an estimated life of two years and a scrap value of $2000. She is considering whether to depreciate it using the straight-line method or to use the reducing balance method at a rate of 60% per annum.
Which statements are correct?
1 The profit for the year in Year 1 is higher if the reducing balance method is chosen.
2 The profit for the year in Year 1 is higher if the straight-line method is chosen.
3 The profit on disposal at the end of Year 2 is higher if the reducing balance method is chosen.
4 The profit on disposal at the end of Year 2 is higher if the straight-line method is chosen.

Q: What topic does this question test?

This question tests Depreciation and Non-Current Assets in A-Level Accounting (syllabus code 9706). It is worth 1 mark.

Q: Which exam paper is this question from?

This question appeared in the Cambridge A-Level Accounting Feb/Mar 2019 examination, Paper 1 Variant 2 (9706_m19_qp_12.pdf).

Question

Daphne buys a non-current asset for $10000. It has an estimated life of two years and a scrap value of $2000. She is considering whether to depreciate it using the straight-line method or to use the reducing balance method at a rate of 60% per annum.
Which statements are correct?
1 The profit for the year in Year 1 is higher if the reducing balance method is chosen.
2 The profit for the year in Year 1 is higher if the straight-line method is chosen.
3 The profit on disposal at the end of Year 2 is higher if the reducing balance method is chosen.
4 The profit on disposal at the end of Year 2 is higher if the straight-line method is chosen.

Oracle Prep · Accepted Answer

The correct answer is C: 2 and 3.

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