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Depreciation Test 18

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Depreciation Test 18
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  • Question 1
    1 / -0
    In which of the following methods, is the cost of the asset written off in equal proportion during its economic life?
    Solution
    This is the easiest and one of the widely used methods of providing depreciation. This method is based on the assumption of equal usage of the asset over its entire useful life. 
    It is called straight line for a reason that if the amount of depreciation and the corresponding time period is plotted on a graph, it will result in a straight line.
  • Question 2
    1 / -0
    The balance in the accumulated provision for depreciation account of a company as at the beginning of the year was Rs. 2,00,000 when the original cost of the assets amounted to Rs. 10,00,000. The company charges 10% depreciation on a straight line basis for all the assets including those which have been either purchased or sold during the year. One such asset costing Rs. 5,00,000 with accumulated depreciation as at the beginning of the year of Rs. 80,00,000 was deposited off during the year.
    Depreciation for the year is __________.
    Solution
    Depreciation for the year = Asset at beginning of the year x depreciation rate 
                                                = 10,00,000 x 10/100
                                                = RS-1,00,000.
  • Question 3
    1 / -0
    Date of Purchase of Machine 1.4.2012, Cost: Rs. 12,00,000, Rate of Depreciation: 10% p.a. Straight Line Basis. On 1.10.2014, a new machinery was purchased for Rs. 80,000. The closing balance of Provision for Depreciation Account as at 31.3.2015 will be:
    Solution
    Balance in provision for depreciation account
    = accumulated depreciation on Machinery from 1.4.2014 to 31.03.2015
    (3 years) + depreciation on new machinery
    = 3,60,000 (WN-1) + 4,000 (WN-2)
    = Rs. 3,64,000.

    Working notes:-
    1. Accumulated depreciation on old machinery from 1.4.2014 to 31.03.2015
    (SLM basis)
    = 12,00,000 x 10/100 x 3 years 
    = Rs. 3,60,000.

    2. Depreciation on new machinery :-
    = Rs. 80,000 x 10/100 x 6/12 (October to march) 
    = Rs. 4,000. 

  • Question 4
    1 / -0
    In which of the following methods, the cost of the asset is not spread over in equal proportion during its useful economic life?
    Solution
    The cost of the asset is spread over in equal proportion during the useful economic life is the straight-line method as the amount of depreciation is the same in this method.
    The cost of the asset is not spread over the useful life in the case of the sum of years digits methods, written down value method and units of production method as the amount of depreciation keeps on decreasing under this method.
  • Question 5
    1 / -0
    Date of Purchase - 1st July, Purchase Price of Machine Rs. 80,000, Installation Charges Rs. 20,000, Residual Value Rs. 40,960, Useful life 4 years, Accounting year -Financial year. Date when Machine was put to use- 1st Oct.
    The depreciation under SLM for the first year will be:-
    Solution
    Depreciation(SLM basis) = Depreciable value - Residual value 
                                               -----------------------------------------------------
                                                                Useful life. 
                                              = 1,00,000 - 40,960
                                                ---------------------------- 
                                                                4
                                              = 14,760 x 6/12 ( October 1st to 31st march)
                                              = RS-7,380.
  • Question 6
    1 / -0
    The balance of Glass & Cutlery A/c on 01.01.2014 is Rs. 28,000. Glass & Cutlery purchased during the year were Rs. 16,000. Depreciation is to be charged on the above as follows-
    -1/5th of its value is to be written off in the year of purchase, and 
    -2/5th in each of the next 2 years. 
    Of the stock of Glass & Cutlery as on 01.01.2014, 1/2 was one year old and 1/2 was 2 years old.
    Purchase are made on 1st January.
    Closing Balance of Glass & Cutley A/c is _____.
    Solution

  • Question 7
    1 / -0
    According to the Income Tax Act, which method of charging depreciation is provided?
    Solution

    Section 32(1) of the Act provides that depreciation is to be computed at the prescribed percentage on the written down value of the asset which in turn is calculated with reference to the actual cost of the assets. In the context of computing depreciation, it is important to understand the meaning of the term ‘WDV’ & ‘Actual Cost’.

  • Question 8
    1 / -0
    A machine was bought at a cost of Rs. 5 lacs on 1.1.02 During its life of 10 years it will be depreciated on SLM basis. On 31.12.08 the machine was sold for Rs. 50,000. Find out the profit/loss?
    Solution
    Profit/loss on Asset = Sale value of asset - WDV of asset 
                                     = 50000 - 1,50,000
                                     = Loss of RS-1,00,000

    Working notes:- 
    WDV of the asset as on 31.12.08
    = Cost - depreciation for 7 years on SLM basis
    = 5,00,000 - 3,50,000 ( 50,000 x 7years)
    = RS-1,50,000
     Depreciation on SLM basis = depreciable amount
                                                     ------------------------------
                                                                  useful life
                                                  = 5,00,000
                                                   -------------------
                                                          10
                                                  = RS-50,000.
  • Question 9
    1 / -0
    Cost of machinery = Rs.2,52,000
    Salvage value = Rs.12,000
    Useful life = 6 years
    Annual depreciation under straight line method will be: 
    Solution

    Purchase Price of Machine Rs. 2,52,000 - Salvage value Rs. 12000 = Depreciable asset cost of Rs 2,40,000

    6 year useful life = 1/6 depreciation rate per year

    1/6 x 2,40,000 depreciable asset cost = Rs 40,000 annual depreciation
  • Question 10
    1 / -0
    In case of reducing balance method of charging depreciation is charged on the:
    Solution

    The reducing balance method of depreciation results in declining depreciation charges each accounting period. In other words, more depreciation is charged at the beginning of the asset's lifetime and less is charged towards the end. This can be useful when an asset has higher utility or productivity when it is new.

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