Accounting Online Program Certification Practice Test

What was the carrying amount of Galaxy Ltd's non-current assets at the start of the financial year?

1. £40,000

2. £50,000

3. £60,000

4. £70,000

The correct answer is: £50,000

To determine the carrying amount of Galaxy Ltd's non-current assets at the start of the financial year, it is essential to consider how carrying amounts are calculated. The carrying amount of non-current assets is the value at which those assets are recognized on the balance sheet. It accounts for the original purchase price minus any accumulated depreciation, amortization, or impairment losses recorded on the assets. If the answer indicates that the carrying amount is £50,000, this suggests that at the beginning of the financial year, the total value of the non-current assets after accounting for any depreciation and possible impairments is accurately identified as £50,000. This figure typically reflects the management’s records of purchases, disposals, and depreciations made up to that date. Understanding this concept is vital as it illustrates how assets can lose value over time, and how businesses record these changes to ensure accurate financial reporting. In this context, while the other figures represent different possible carrying amounts, they do not align with the calculated or reported value of non-current assets derived from the company’s financial records at the start of the financial year. Therefore, the identified carrying amount accurately reflects the state of the asset values in the company’s financial position as of that specific date.