Accounting Online Program Certification Practice Test

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Prepare for the Accounting Online Program Certification Test. Use flashcards and multiple choice questions with detailed explanations. Ace your accounting certification exam with confidence!

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What is the value of the old car taken in by Derek's company for the trade-in?

£10,000
£25,000
£14,000
£44,000

The correct answer is: £10,000

In accounting, when determining the value of an old asset like a car that is taken in as a trade-in, the relevant figure is usually the book value or fair market value at the time of the trade-in. If we consider that the answer is taking into account the valuation method commonly used for trade-ins, £10,000 likely represents the estimated fair market value of the old car as determined by factors such as its age, condition, and current market demand. This value is significant, as it affects the accounting treatment on the company's books. It would reduce the amount Derek's company needs to pay for the new car by this trade-in value. Other options such as £25,000, £14,000, and £44,000 may represent higher valuations that could misrepresent the actual worth of the old car in its current condition or in comparison to similar vehicles in the market at that time. Proper valuation practices are crucial to ensure accurate financial reporting and decision-making.