Accounting Online Program Certification Practice Test

What is the total amount charged to profit or loss regarding a machine's depreciation and impairment for the year ended 31 August 20X7?

1. £8,000

2. £11,000

3. £10,000

4. £5,000

The correct answer is: £11,000

To determine the total amount charged to profit or loss regarding a machine's depreciation and impairment for the year ended 31 August 20X7, it is essential to understand how these two accounting concepts contribute to the overall financial reporting of an asset. Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. This means that a portion of the asset's value is recognized as an expense in each accounting period to reflect the wear and tear and consumption of the asset. For instance, if the annual depreciation expense for the machine is, let's say, £8,000, this cost would be recorded on the profit or loss statement for that year. Impairment, on the other hand, refers to a decrease in the recoverable amount of an asset below its carrying amount. If it's determined that the machine has lost value due to factors such as technological obsolescence or market conditions, an impairment loss would need to be recognized. If the impairment loss for the machine is, for example, £3,000, it would also be recorded as an expense in the profit or loss statement. Combining both expenses gives the total amount that impacts profit or loss for that year. Thus, if the depreciation expense is £8