Lecture 5a and 5b

Question 1

What are accounting adjustments?

Answer 1

Items which change after a trial balance has been prepared.

Question 2

What is dual effect in accounting?

Answer 2

Something that changes on the income statement and an equal change occurs on the balance sheets so the accounts stay in balance.

Question 3

What is depreciation?

Answer 3

A way of spreading costs over the asset’s useful life.

Question 4

How does depreciation affect the asset’s value?

Answer 4

The asset on the statement of financial position falls in value every year.

Question 5

Example of depreciation calculation for a car purchase.

Answer 5

Purchased a car for £10,000. Expect to keep it for 10 years. Charge £1,000 per year to accounts.

Non-Current Assets Cost Dep NBV: Car 10,000 1,000 9,000.

Question 6

What is straight-line depreciation?

Answer 6

Depreciation charge is the same every year.

Question 7

What is reducing balance depreciation?

Answer 7

Depreciation charge is higher in the early years.

Question 8

What are relevant costs?

Answer 8

Variable costs of the scarce resource and the contribution foregone of the next best thing.

Question 9

How is contribution calculated?

Answer 9

Contribution = sales – variable costs.