Basic Financial Accounting - Fixed Assets

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    5. Journal entry of fixed assets – Credit purchase without VATA company has purchased a building for 8.000.000. The building has not yet been paid for and will be used for production in connection with the firm’s activities.How should the information above be posted? 

    • The account for building under tangible assets is debited 8.000.000 while the other creditors (liability) account is credited 8.000.000.
    • The account for building under tangible assets is credited 8.000.000 while the cash account (asset) is debited 8.000.000.
    • The account for building under tangible assets is debited 8.000.000 while the account for prepaid expenses (asset) is credited 8.000.000.
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Basic Financial Accounting - Fixed Assets - Quiz

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  • 2. 

    9. Journal entry of impairment on fixed assets A company owns a machine which is used in the production. The machine was purchased for the amount of 2.000.000 some years ago. The accumulated depreciations are 800.000 which means that the booked value of the machine is (2.000.000 – 800.000) = 1.200.000. However, the company estimates that the value of the machine is only 300.000. There is thus a negative gap between the booked value and the current value.How should the information above be posted?

    • The impairment account (profit/loss) is debited 900.000 while the accumulated depreciations account (asset) is credited 900.000.

    • The impairment account (profit/loss) is debited 300.000 while the accumulated depreciations account (asset) is credited 300.000.

    • The impairment account (profit/loss) is debited 1.700.000 while the accumulated depreciations account (asset) is credited 1.700.000.

    • The impairment account (profit/loss) is credited 300.000 while the accumulated depreciations account (asset) is debited 300.000.

    Correct Answer
    A. The impairment account (profit/loss) is debited 900.000 while the accumulated depreciations account (asset) is credited 900.000.
    Explanation
    The correct answer is that the impairment account (profit/loss) is debited 900,000 while the accumulated depreciations account (asset) is credited 900,000. This is because the estimated value of the machine is 300,000, which is 900,000 less than the booked value of 1,200,000. Impairment occurs when the value of an asset decreases significantly and permanently, and it is recorded as a loss in the impairment account. The accumulated depreciations account is credited because it represents the reduction in the value of the asset over time due to depreciation.

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  • 3. 

    3. Journal entry of fixed assets – Cash purchase without VATA company has purchased a building for 4.000.000. The building has been paid for in cash and will be used for production in connection with the firm’s activities.How should the information above be posted? 

    • The account for building under tangible assets is credited 4.000.000 while the cash account (asset) is debited 4.000.000.

    • The account for building under intangible assets is debited 4.000.000 while the cash account (asset) is credited 4.000.000.

    • The account for building under tangible assets is debited 4.000.000 while the cash account (asset) is credited 4.000.000.

    Correct Answer
    A. The account for building under tangible assets is debited 4.000.000 while the cash account (asset) is credited 4.000.000.
    Explanation
    The correct answer is that the account for building under tangible assets is debited 4.000.000 while the cash account (asset) is credited 4.000.000. This is because when a company purchases a building for cash, it is considered a fixed asset and should be recorded as a debit in the building account. At the same time, the cash account should be credited because the company is using cash to make the purchase. This journal entry accurately reflects the transaction and ensures that the company's financial records are accurate.

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  • 4. 

    8. Journal entry of depreciations on fixed assets – Part of yearA company owns a machine which is used in the production. The machine was purchased for the amount of 3.500.000 in the middle of the fiscal year. The company estimates that the machine has a life span of 6 years. After that the machine is estimated to have a scrap value of 500.000.The company uses straight-line depreciations for machines to reflect the use (cost) of the machine.How should the information above be posted - calculate and post the depreciations. 

    • The account for depreciations (profit/loss) is debited 250.000 while the account for accumulated depreciations (assets) is credited 250.000.

    • The account for depreciations (profit/loss) is debited 500.000 while the account for accumulated depreciations (assets) is credited 500.000.

    • The account for depreciations (profit/loss) is debited 583.333 while the account for accumulated depreciations (assets) is credited 583.333.

    • The account for depreciations (profit/loss) is credited 291.667 while the account for accumulated depreciations (assets) is debited 291.667.

    Correct Answer
    A. The account for depreciations (profit/loss) is debited 250.000 while the account for accumulated depreciations (assets) is credited 250.000.
    Explanation
    The correct answer is that the account for depreciations (profit/loss) is debited 250.000 while the account for accumulated depreciations (assets) is credited 250.000. This is because the machine was purchased for 3.500.000 and is estimated to have a scrap value of 500.000 after 6 years. Therefore, the total depreciation over the 6-year period would be 3.500.000 - 500.000 = 3.000.000. Dividing this by 6 years gives an annual depreciation of 3.000.000 / 6 = 500.000. Since the machine was purchased in the middle of the fiscal year, the depreciation for the first year would be half of the annual depreciation, which is 500.000 / 2 = 250.000. Hence, the correct journal entry for depreciation would be to debit the account for depreciations (profit/loss) by 250.000 and credit the account for accumulated depreciations (assets) by 250.000.

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  • 5. 

    4. Journal entry of fixed assets – Cash purchase with VATA company has purchased a machine for 2.000.000. The machine has been paid for in cash and will be used for production in connection with the firm’s activities. The purchase amount includes 400.000 in VAT. The VAT amount is fully deductible.How should the information above be posted? 

    • The account formachinery under tangible assets is credited 2.000.000 while the cash account (asset) is debited 2.000.000.

    • The account for machinery under tangible assets is debited 2.000.000, the cash account (asset) is credited 1.600.000 while the account for input VAT (liability) is debited 400.000.

    • The account for machinery under tangible assets is debited 1.600.000, the cash account (asset) is credited 2.000.000 while the account for input VAT (liability) is debited 400.000.

    • The account for machinery under tangible assets is debited 1.600.000, the cash account (asset) is credited 2.000.000 while the account for output VAT (liability) is credited 400.000..

    Correct Answer
    A. The account for machinery under tangible assets is debited 1.600.000, the cash account (asset) is credited 2.000.000 while the account for input VAT (liability) is debited 400.000.
    Explanation
    The correct answer is that the account for machinery under tangible assets is debited 1.600.000, the cash account (asset) is credited 2.000.000 while the account for input VAT (liability) is debited 400.000. This is because the machine is being purchased for 2.000.000, which includes 400.000 in VAT. The VAT amount is fully deductible, so it is recorded as a debit to the input VAT account. The machine is a fixed asset, so it is recorded as a debit to the machinery account. The purchase is made in cash, so the cash account is credited for the full amount of 2.000.000.

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  • 6. 

    6. Journal entry of fixed assets – Credit purchase with VATA company has purchased a machine for 500.000. The machine has not yet been paid for and will be used for production in connection with the firm’s activities. The purchase amount includes 100.000 in VAT. The VAT amount is fully deductible.How should the information above be posted? 

    • The account for machinery under tangible assets is debited 400.000, the other creditors account (liability) is credited 500.000 while the account for output VAT (liability) is credited 100.000..

    • The account formachinery under tangible assets is credited 500.000 while the other creditors account (asset) is debited 500.000.

    • The account for machinery under tangible assets is debited 500.000, the other creditors account (liability) is credited 400.000 while the account for input VAT (liability) is debited 100.000.

    • The account for machinery under tangible assets is debited 400.000, the other creditors account (liability) is credited 500.000 while the account for input VAT (liability) is debited 100.000.

    • The account for machinery under tangible assets is credited 800.000, the other creditors account (liability) is debited 1.000.000 while the account for input VAT (liability) is credited 200.000.

    Correct Answer
    A. The account for machinery under tangible assets is debited 400.000, the other creditors account (liability) is credited 500.000 while the account for input VAT (liability) is debited 100.000.
    Explanation
    When a company purchases a machine with VAT included, the cost of the machine is divided into two parts: the actual cost of the machine and the VAT amount. In this case, the machine costs 500.000, with 100.000 being the VAT amount. The VAT amount is fully deductible, so it is recorded as a liability. The account for machinery under tangible assets is debited with the actual cost of the machine (400.000), indicating an increase in the company's assets. The other creditors account is credited with the total cost of the machine (500.000), representing the amount owed to the creditor. Finally, the account for input VAT is debited with the VAT amount (100.000), indicating the liability for the VAT.

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  • 7. 

    7. Journal entry of depreciations on fixed assets – Full yearA company owns a machine which is used in the production. The machine was purchased for the amount of 2.200.000 at the beginning of the fiscal year. The company estimates that the machine has a life span of 5 years. After that the machine is estimated to have a scrap value of 200.000.The company uses straight-line depreciations for machines to reflect the use (cost) of the machine.How should the information above be posted - calculate and post the depreciations. 

    • The account for depreciations (profit/loss) is debited 440.000 while the account for accumulated depreciations (assets) is credited 440.000.

    • The account for depreciations (profit/loss) is debited 400.000 while the account for accumulated depreciations (assets) is credited 400.000.

    • The account for depreciations (profit/loss) is credited 440.000 while the account for accumulated depreciations (assets) is debited 440.000.

    • The account for depreciations (profit/loss) is credited 400.000 while the account for accumulated depreciations (assets) is debited 400.000.

    Correct Answer
    A. The account for depreciations (profit/loss) is debited 400.000 while the account for accumulated depreciations (assets) is credited 400.000.
    Explanation
    The correct answer is that the account for depreciations (profit/loss) should be debited 400.000 while the account for accumulated depreciations (assets) should be credited 400.000. This is because the machine was purchased for 2.200.000 and is estimated to have a scrap value of 200.000 after 5 years. Therefore, the total depreciation over the 5-year period would be 2.000.000 (2.200.000 - 200.000). Since straight-line depreciation is used, the annual depreciation expense would be 400.000 (2.000.000 / 5). The account for depreciations (profit/loss) is debited to reflect the expense, and the account for accumulated depreciations (assets) is credited to reduce the value of the machine on the balance sheet.

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  • 8. 

    10. Journal entry of fixed assets – Cash sale without VATA company has just sold a building which has been used in the company’s production. The building was purchased for the amount of 4.000.000 some years ago. The accumulated depreciations are 1.800.000 (including depreciations for the current fiscal year) which means that the booked value of the building is (4.000.000 – 1.800.000) = 2.200.000.  The building has been sold for the amount of 3.000.000 in cash. The company has thus obtained a profit of (3.000.000-2.200.000) = 800.000.How should the information above be posted?

    • The gain on asset account (profit/loss) is credited 800.000, the tangible asset account is debited 1.800.000, the cash account (asset) is debited 3.000.000 while the accumulated depreciations account (asset) is credited 4.000.000.

    • The revenue account (profit/loss) is credited 800.000, the tangible asset account is credited 4.000.000, the cash account (asset) is debited 3.000.000 while the accumulated depreciations account (asset) is debited 1.800.000.

    • The gain on assets account (profit/loss) is credited 800.000, the tangible asset account is credited 4.000.000, the cash account (asset) is debited 3.000.000 while the accumulated depreciations account (asset) is debited 1.800.000.

    • The revenue account (profit/loss) is debited 800.000, the tangible asset account is debited 4.000.000, the cash account (asset) is credited 3.000.000 while the accumulated depreciations account (asset) is credited 1.800.000.

    Correct Answer
    A. The gain on assets account (profit/loss) is credited 800.000, the tangible asset account is credited 4.000.000, the cash account (asset) is debited 3.000.000 while the accumulated depreciations account (asset) is debited 1.800.000.
    Explanation
    The correct answer is that the gain on assets account (profit/loss) is credited 800,000, the tangible asset account is credited 4,000,000, the cash account (asset) is debited 3,000,000, and the accumulated depreciations account (asset) is debited 1,800,000. This is because when a company sells a fixed asset, the gain or loss on the sale is recorded in the gain on assets account. The tangible asset account is credited to remove the building from the company's books, and the cash account is debited to record the receipt of cash from the sale. The accumulated depreciations account is debited to remove the accumulated depreciation on the building.

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  • 9. 

    13. Journal entry of fixed assets – Credit sale with VATA company just sold a machine which has been used in the company’s production. The machine was purchased for the amount of 1.500.000 some years ago. The accumulated depreciations are 500.000 (including depreciations for the current fiscal year) which means that the booked value of the machine is (1.500.000 – 500.000) = 1.000.000.  The machine has been sold for the amount of 800.000 (including 160.000 in output VAT). However the amount is not to be received until 6 months from now. The company has thus incurred a loss of ((800.000-160.000)-1.000.000) = 360.000.How should the information above be posted?

    • The loss on assets account (profit(loss) is debited 360.000, the tangible assets account is credited 1.500.000, the accumulted depreciations account (asset) is debited 500.000, the output VAT account (liability) is credited 160.000 while the other debtors account (asset) is debited 800.000.

    • The loss on assets account (profit(loss) is debited 360.000, the tangible assets account is credited 1.500.000, the accumulted depreciations account (asset) is debited 500.000, the output VAT account (liability) is credited 160.000 while the trade debtors account (asset) is debited 800.000.

    • The loss on assets account (profit(loss) is credited 360.000, the tangible assets account is debited 1.500.000, the accumulted depreciations account (asset) is credited 500.000, the output VAT account (liability) is debited 160.000 while the trade debtors account (asset) is credited 800.000.

    • The revenue account (profit(loss) is debited 360.000, the tangible assets account is credited 1.500.000, the accumulted depreciations account (asset) is debited 500.000, the output VAT account (liability) is credited 160.000 while the other debtors account (asset) is debited 800.000.

    Correct Answer
    A. The loss on assets account (profit(loss) is debited 360.000, the tangible assets account is credited 1.500.000, the accumulted depreciations account (asset) is debited 500.000, the output VAT account (liability) is credited 160.000 while the other debtors account (asset) is debited 800.000.
    Explanation
    The correct answer is the fourth option. The loss on assets account is debited for 360,000 because the company incurred a loss on the sale of the machine. The tangible assets account is credited for 1,500,000 to remove the machine from the company's balance sheet. The accumulated depreciations account is debited for 500,000 to remove the accumulated depreciation of the machine. The output VAT account is credited for 160,000 because it represents the VAT collected on the sale. Finally, the other debtors account is debited for 800,000 to record the amount to be received from the buyer in 6 months.

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  • 10. 

    11. Journal entry of fixed assets – Cash sale with VAT   A company just sold a machine which has been used in the company’s production. The machine was purchased for the amount of 1.000.000 some years ago. The accumulated depreciations are 800.000 (including depreciations for the current fiscal year) which means that the booked value of the machine is (1.000.000 – 800.000) = 200.000.    The machine has been sold for the amount of 100.000 (including 20.000 in output VAT) in cash. The company has thus incurred a loss of ((100.000-20.000)-200.000) = 120.000. How should the information above be posted?

    • The loss on assets account (profit/loss) is debited 120.000, the tangible fixed asset account is credited 1.000.000, the accumulated depreciations account (asset) is debited 800.000, the input VAT account (liability) is credited 20.000 while the cash account (asset) is debited 100.000.

    • The loss on assets account (profit/loss) is debited 120.000, the tangible fixed asset account is credited 1.000.000, the accumulated depreciations account (asset) is debited 800.000, the output VAT account (liability) is credited 20.000 while the cash account (asset) is debited 100.000.

    • The loss on assets account (profit/loss) is debited 120.000, the intangible fixed asset account is credited 1.000.000, the accumulated depreciations account (asset) is debited 800.000, the output VAT account (liability) is credited 20.000 while the cash account (asset) is debited 100.000.

    • The loss on assets account (profit/loss) is credited 120.000, the tangible fixed asset account is debited 1.000.000, the accumulated depreciations account (asset) is credited 800.000, the output VAT account (liability) is debited 20.000 while the cash account (asset) is credited 100.000.

    Correct Answer
    A. The loss on assets account (profit/loss) is debited 120.000, the tangible fixed asset account is credited 1.000.000, the accumulated depreciations account (asset) is debited 800.000, the output VAT account (liability) is credited 20.000 while the cash account (asset) is debited 100.000.
    Explanation
    The correct answer is: The loss on assets account (profit/loss) is debited 120.000, the tangible fixed asset account is credited 1.000.000, the accumulated depreciations account (asset) is debited 800.000, the output VAT account (liability) is credited 20.000 while the cash account (asset) is debited 100.000.

    This is the correct posting because when a fixed asset is sold, the loss on assets account is debited for the amount of the loss, which in this case is 120.000. The tangible fixed asset account is credited for the original cost of the asset, which is 1.000.000. The accumulated depreciations account is debited for the total amount of accumulated depreciations, which is 800.000. The output VAT account is credited for the amount of VAT collected on the sale, which is 20.000. Finally, the cash account is debited for the amount of cash received from the sale, which is 100.000.

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  • 11. 

    12. Journal entry of fixed assets – Credit sale without VATA company just sold a building which has been used in the company’s production. The building was purchased for the amount of 8.000.000 some years ago. The accumulated depreciations are 6.000.000 (including depreciations for the current fiscal year) which means that the booked value of the building is (8.000.000 – 6.000.000) = 2.000.000. The building has been sold for the amount of 3.700.000. However the amount is not to be received until 6 months from now. The company has thus obtained a profit of (3.700.000-2.000.000) = 1.700.000.How should the information above be posted?

    • The gain on asset account (profit/loss) is credited 3.700.000, the tangible fixed assets account is credited 8.000.000, the accumulated depreciations account (asset) is debited 6.000.000 while the other debtors account is debited 2.000.000.

    • The gain on asset account (profit/loss) is debited 1.700.000, the tangible fixed assets account is debited 8.000.000, the accumulated depreciations account (asset) is credited 6.000.000 while the trade debtors account is credited 3.700.000.

    • The gain on asset account (profit/loss) is credited 1.700.000, the tangible fixed assets account is credited 8.000.000, the accumulated depreciations account (asset) is debited 6.000.000 while the trade debtors account is debited 3.700.000.

    • The gain on asset account (profit/loss) is credited 1.700.000, the tangible fixed assets account is credited 8.000.000, the accumulated depreciations account (asset) is debited 6.000.000 while the other debtors account is debited 3.700.000.

    Correct Answer
    A. The gain on asset account (profit/loss) is credited 1.700.000, the tangible fixed assets account is credited 8.000.000, the accumulated depreciations account (asset) is debited 6.000.000 while the other debtors account is debited 3.700.000.
    Explanation
    The correct answer is the gain on asset account (profit/loss) is credited 1.700.000, the tangible fixed assets account is credited 8.000.000, the accumulated depreciations account (asset) is debited 6.000.000 while the other debtors account is debited 3.700.000. This is because the company has sold a building that was used in its production. The building was originally purchased for 8.000.000, but the accumulated depreciations amount to 6.000.000, resulting in a booked value of 2.000.000. The building has been sold for 3.700.000, which means the company has obtained a profit of 1.700.000. The gain on asset account is credited to reflect this profit, and the tangible fixed assets account is credited to remove the building from the company's assets. The accumulated depreciations account is debited to remove the accumulated depreciations for the building, and the other debtors account is debited to record the amount to be received in 6 months.

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  • Mar 20, 2023
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