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Depreciation Test 2

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Depreciation Test 2
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  • Question 1
    1 / -0
    Straight line method is also known as ___________________.
    Solution
    Under Straight line method , a fixed and equal amount is charged as depreciation every year during the life time of asset. This amount is such that the book value of the asset  may become zero at the end of its useful life. 
    Depreciation is calculated by the below formula:

    Depreciation= Cost of Asset-Estimated scrap value
                                 Estimated useful life of asset
    Since the amount of depreciation in every year remains the same, it is also known as fixed installment method.
  • Question 2
    1 / -0
    The depreciation amount in straight line method remains _____________________ for every year.
    Solution
    Under Straight line method , a fixed and equal amount is charged as depreciation every year during the life time of asset. The depreciation under this method is a fixed amount every year. This amount is such that the book value of the asset  may become zero at the end of its useful life. 

    Depreciation is calculated by the below formula:

    Depreciation= Cost of Asset-Estimated scrap value
                                 Estimated useful life of asset
  • Question 3
    1 / -0
    Straight Line method is suitable for those assets whose useful life can be estimated _____________.
    Solution
    The assets whose usage life is estimated on reliable terms can under go straight line method for calculating depreciation. As the constant depreciation value every year, under this method will turn the asset value to nil at the end of its life.
  • Question 4
    1 / -0
    Asset purchase in 2020 at Rs.20000. Calculate the depreciation amount for 2years @10p.a. under written down value method ____________.
    Solution
    Under Written down value method Depreciation is calculated on the book value every year.

  • Question 5
    1 / -0
    The Diminishing Balance Method of providing depreciation states ______________.
    Solution
    Option A is correct. Under Diminishing balance method, depreciation is charged at a fixed percentage on the book value of the asset. Rate percent always remain same but the book value of asset on which depreciation is provided is reduced from year to year. Since the book value reduces every year hence the amount of depreciation also reduces every year. 
  • Question 6
    1 / -0
    Written Down value Method is also known as _____________.
    Solution
    Under written down value method Depreciation is calculated on the book value. As the Book Value get reduced after every depreciation charged against it , the value of depreciation gets Reduced. Hence, It is also called as Reducing Balance Method.
  • Question 7
    1 / -0
    Under written down value method it is ______________________ to ascertain a suitable rate of depreciation.
    Solution
    Rate of depreciation may depend on various factors like Life, cost, use, working conditions. 
    Hence, it is bit difficult to estimate the rate of depreciation under written down value method.
  • Question 8
    1 / -0
    The straight line method is based on __________________ assumption of same amount.
    Solution
    Faulty.
    The main drawback of the straight line method of charging depreciation is that the amount in the later years is high when the utility of the asset is reduced. This method does not recognize the fact that in the initial years of life of the asset, the repairs and maintenance cost is less, which goes on increasing gradually with the progressing life of an asset. According to this method, the amount of depreciation does not variate over the life of the asset, which is a wrong or fault assumption.
  • Question 9
    1 / -0
    Under written down value method the depreciation amount ___________________ every year.
    Solution
    Depreciation is provided on fixed assets on account of were and tear of the asset by suing them. Depreciation is provided on assets based on the useful life of the assets. 

    Written down value method is that when the depreciation is charged  every year on the balance value of the assets after charging the previous year depreciation. It is also know as diminishing balance method.  Under this method the depreciation amount changes every year.

    For example:

    Cost of an assets                                    Rs.10000
    Depreciation for year I @10%                 Rs.1000
                                                                 ----------------------
    Written down value                               Rs.9000
    Depreciation for year II @10%              Rs. 900
                                                                  -------------------
    Written down value                              Rs.8100
    Depreciation for year III @ 10%           Rs.   810
                                                                --------------
    And so on..              
  • Question 10
    1 / -0
    The method of depreciation under which depreciation is calculated on original cost of an asset is known as ____________ .
    Solution
    Option D is correct. The straight-line method is also known as the Original Cost method and Fixed Installment Method. Under the straight-line method, Depreciation is calculated on the original cost of an asset. That's why it is also known as the original cost method and every year a fixed amount of depreciation is charged from the asset. So it is known as the fixed instalment method. 
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