PPE Practice Questions and Solutions
Question 1: Calculate cost of PPE
A company buys equipment for Rs.400,000, pays Rs.15,000 for delivery and Rs.25,000 for installation. The
supplier gives a 5% discount on the purchase price. What is the total cost of the PPE?
Solution:
Cost = Rs.400,000 + Rs.15,000 + Rs.25,000 - (5% of Rs.400,000) = Rs.440,000 - Rs.20,000 = Rs.420,000
Question 2: Straight-line depreciation
A machine is bought for Rs.500,000, with a residual value of Rs.50,000 and a useful life of 5 years. Calculate
annual depreciation.
Solution:
Depreciation = (Rs.500,000 - Rs.50,000) / 5 = Rs.90,000
Question 3: Book value after 3 years
Using the above depreciation, what is the book value after 3 years?
Solution:
Accumulated Depreciation = Rs.90,000 × 3 = Rs.270,000
Book Value = Rs.500,000 - Rs.270,000 = Rs.230,000
Question 4: Gain or loss on sale
If the machine is sold at the end of year 3 for Rs.250,000, what is the gain or loss?
PPE Practice Questions and Solutions
Solution:
Book Value = Rs.230,000
Gain = Rs.250,000 - Rs.230,000 = Rs.20,000 (Gain)
Question 5: Change in useful life
An asset is bought for Rs.600,000 with Rs.60,000 residual value and 6 years of useful life. After 3 years, the
useful life is revised to 8 years total. What is the new depreciation per year?
Solution:
Old Depreciation = Rs.90,000/year
Accumulated Depreciation = Rs.270,000
Book Value = Rs.330,000
Remaining life = 5 years
New Depreciation = (Rs.330,000 - Rs.60,000) / 5 = Rs.54,000
Question 6: Calculate revaluation gain
An asset with a book value of Rs.350,000 is revalued to Rs.400,000. What is the revaluation gain?
Solution:
Revaluation Gain = Rs.400,000 - Rs.350,000 = Rs.50,000
Question 7: Calculate depreciation using reducing balance
An asset is bought for Rs.200,000 with a 20% reducing balance method. Calculate depreciation for year 1
and year 2.
PPE Practice Questions and Solutions
Solution:
Year 1: 20% of Rs.200,000 = Rs.40,000
Year 2: 20% of Rs.160,000 = Rs.32,000
Question 8: PPE impairment loss
An asset has a carrying amount of Rs.500,000. Recoverable amount is Rs.420,000. What is the impairment
loss?
Solution:
Impairment Loss = Rs.500,000 - Rs.420,000 = Rs.80,000
Question 9: Journal entry for disposal
Asset cost: Rs.300,000, Acc. Depreciation: Rs.180,000, Sold for Rs.140,000.
Solution:
Book Value = Rs.120,000
Gain = Rs.140,000 - Rs.120,000 = Rs.20,000
Journal: Dr Cash Rs.140,000, Dr Acc. Dep Rs.180,000, Cr Asset Rs.300,000, Cr Gain Rs.20,000
Question 10: Cost capitalization
Company constructs a building: Materials Rs.700,000, Labor Rs.300,000, Admin costs Rs.50,000 (not
directly related), and loan interest Rs.40,000. What is the capitalized cost?
PPE Practice Questions and Solutions
Solution:
Capitalized Cost = Rs.700,000 + Rs.300,000 + Rs.40,000 = Rs.1,040,000
