6. When a records by transfer to a disp REVIEW QUESTIONS on capital OM2 10 pol 1. (a) What is the reason for charging depreciation expenditure in the income statement? Koala bought a printing press on 1 October 2004 for $40 000. She is preparing her financial statements for the year ended 30 September 2005 and needs to decide which method of depreciation should be used. She expects the printing press to have a useful life of ten years, and pavo to be able to sell it at the end of that time for $4000. Using this information she could use the straight line method or the poll reducing (diminishing) balance method at 20% per annum. res(b) Explain each of these methods of depreciation. (c) Calculate how much depreciation will be charged in Koala's income statement for the next three years under each of the two methods. Koala decides to use the reducing balance method of depreciation. (d) Show the entries in the provision for depreciation of machinery account for each of the three years ending 30 September 2005, 2006 and 2007. (e) Explain to Koala the revaluation method of depreciation. 2. Smith has a business selling washing machines. He buys the [Based on IGCSE 2005] goods from the manufacturers and sells them to stores and other suppliers. He keeps full accounting records and his trial balance at 30 June 2005 is shown below. Smith Trial Balance at 30 June 2005 Dr Cr $ $ Advertising coat Bank 400 3 200 fer Carriage inwards Trade payables muq Instaglap 700 Trade receivables SOR 8 600 14 800 Provision for depreciation of non-current assets 2 800 Drawings 24 000 Fixtures & fittings 5 600 390 General expenses Insurance 420 gowe 600 Lighting and heating Motor vehicle a lopenzo 12 000 Motor expenses 860 Office expenses 280 1069 720 Rent 180 Postage and stationery 75 600 Purchases Revenue (sales) Capital shtats 8 400 5 250 Inventory at 1 July 2004 Wages and salaries 153 400 The following additional information is available. 1. Inventory at 30 June 2005 was valued at $7100. 2. Motor expenses of $350 are to be accrued. 102 000 40 000 153 400