Accounting for non-current assets: Practice Questions

Which accounting concept is primarily applied when a business charges depreciation to ensure that the cost of a non-current asset is allocated over the periods in which it earns revenue?

Which accounting concept requires that the depreciation method chosen for an asset should be applied consistently from one year to the next unless there is a valid reason for change?

Which of the following is an example of revenue expenditure?

A company changed its depreciation method for machinery from the reducing balance method to the straight-line method. How should this change be treated according to accounting principles?

Which accounting concept is most directly applied when a business provides for the depreciation of its non-current assets to ensure that the cost of the asset is allocated against the revenue it generates?

Identify two factors, other than the passage of time, that cause the value of non-current assets to depreciate.

Explain the effect on the Statement of Financial Position if a bookkeeper incorrectly records the purchase of a new motor vehicle as a repair expense.

Explain why the consistency concept is applied when a business selects a method for calculating the depreciation of its non-current assets.

A business recently incurred the following expenditures:
1. Purchase of a new delivery truck.
2. Payment of annual motor vehicle insurance.
3. Cost of upgrading a machine's engine to significantly increase its operating capacity.

(a) Classify each of the three expenditures as either capital expenditure or revenue expenditure.

(b) Explain the effect on the profit for the year if item 3 was incorrectly treated as revenue expenditure.