The Balance Sheet of Brown Ltd at 31 December 2014

question 14

Multiple Choice

The balance sheet of Brown Ltd at 31 December 2014 shows the following.
$
Plant 80 000
Accumulated depreciation - plant 30 000
50 000
On 1 January 2015,based on a valuer's estimate of fair value,it was decided to revalue the plant to $65 000.The plant was then assessed to have a further useful life of 5 years and an expected residual amount of $5000.What is the journal entry in the books of Brown Ltd to record depreciation on plant on a straight-line basis for the half-year ending 30 June 2015 (balance date) ?

• A)Depreciation expense - plant 12 000 Accumulated depreciation- plant 12 000
• B)Depreciation expense - plant 6 000 Accumulated depreciation - plant 6 000
• C)Accumulated depreciation - plant 6 000 Depreciation expense - plant 6 000
• D)Depreciation expense - plant 6 500 Accumulated depreciation- plant 6 500

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Definitions:

Net Cash Inflows

The total amount of cash received minus cash paid out over a specific period, not including non-cash expenses.

Straight-Line Method

A method of depreciation that allocates an equal portion of an asset’s cost to each year of its useful life.

Payback Period

denotes the length of time required to recoup the cost of an investment, helping investors understand the risk and liquidity of the project.

Simple Rate of Return

A method to estimate the profitability of an investment, calculated by dividing the net annual income by the initial investment cost.