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Depreciation Test 3

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Depreciation Test 3
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  • Question 1
    1 / -0
    The method of depreciation in which the amount of depreciation is not constant every year is _____________ .
    Solution
    Under written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value (in subsequent years) of a fixed depreciable asset is written off during each accounting period over the expected useful life of asset. Under this method, the rate of depreciation remains constant year after year whereas the amount of depreciation goes on decreasing. Written down value method is also known as reducing balance method and diminishing balance method.
  • Question 2
    1 / -0
    Which method is followed to have a uniform charge for depreciation and repairs and maintenance together :
    Solution
    Here the 1st option is right answer. The written down value method and uniform charge for depreciation use the same formula while calculating the depreciation.
  • Question 3
    1 / -0
    Under ________ system, amount of depreciation changes every year.
    Solution
    Under reducing balance method of depreciation, the depreciation is charged on the written down value of the asset every year. In such case, depreciation amount changes every year and get reduces as written down value decreases every year. 

    Below is the example:

    Original Cost of Asset:                                   Rs.10000
    Less: Depreciation @10%   Year I                  Rs. 1000
                                                                           ---------------------
    Written down value                                       Rs.9000
    Less: Depreciation @10% Year II                  Rs.900
                                                                          ---------------------
    Written down value                                      Rs.8100
    Less : Depreciation @10% Year III                Rs.810
  • Question 4
    1 / -0
    Under ________ method, depreciation is calculated on written down value.
    Solution
    Under written down value method, depreciation is charged on the written down value of the asset every year. In this method, the amount of depreciation changes every year and get reduces as written down value decreases every year. 
    For example, Cost of asset is Rs.10000 depreciation 10% on W.D.V. method. 

    Cost of Asset;                                                        Rs.10000
    Less: Depreciation for year I @10%                      Rs. 1000
                                                                                  ------------------
    W.D.V of asset on year II                                       Rs.9000
    Less: Depreciation for year II @10%                     Rs. 900

    and so on... 
  • Question 5
    1 / -0
    Under ___________ system, the amount of depreciation remains constant every year.
    Solution
    Under the Fixed Installment system, depreciation is charged on the basis of its original cost reducing by the scrap value and dividing the balance value on the estimated life of the asset. In such a system, depreciation will remain fixed every year. 
    Below is the example:

    Depreciation= Original Cost- Scrap Value 
                               Estimated Life of asset
                         = Rs.100000 - Rs.20000
                            ----------------------------------
                                          5 years
    Depreciation per year will be Rs.16000
  • Question 6
    1 / -0
    In Straight Line Method of depreciation, the amount of depreciation remain ___________ every year.
    Solution
    Under Fixed Installment system, depreciation is charged on the basis of its original cost reducing by the scrap value and dividing the balance value on the estimated life of the asset. In such system, depreciation will remain constant every year. 
    Below is the example:

    Depreciation= Original Cost- Scrap Value 
                               Estimated Life of asset
                         = Rs.100000 - Rs.20000
                            ----------------------------------
                                          5 years
    Depreciation per year will be Rs.16000
  • Question 7
    1 / -0
    The estimated value of depreciable assets after useful life is called __________.
    Solution
    Salvage value is sometimes referred to as disposal value, residual value, terminal value, or scrap value. The estimated salvage value is deducted from the cost of the assets in order to determine the total amount of depreciation expenses that will be reported during the assets useful life. The price at which a fixed asset is expected to be sold at the end of its useful life is called as disposal value.
  • Question 8
    1 / -0
    The number of years an asset is expected to be useful before it wears out is called its ___________.
    Solution
    Useful life is the estimated lifespan of a depreciable fixed assets, during which it can be expected to contribute to company operations. This is an important concept in accounting since a fixed asset is depreciated over its useful life. 
  • Question 9
    1 / -0
    Under the __________ system of depreciation, the amount of depreciation does not change from year to year.
    Solution
    Depreciation is a reduction in the value of fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a charge on profit & loss account, and debited to profit & loss account.

    There are various method of depreciation. Most commonly used methods are fixed installment method and written down value method. 

    Under fixed installment method, amount of depreciation does not change and it is fixed year to year. 

    For example: Cost of machine is Rs.50000, scrap value Rs.5000, estimated life of machine is 5 years. Depreciation will be calculated as under:

    Depreciation = Cost of Machine - Scrap Value
                              ---------------------------------------------
                               Estimated Life of Machine 
              
                            = Rs.50000 - Rs.5000
                               ------------------------------
                                           5 yrs
    Depreciation per year will be Rs.9000.
  • Question 10
    1 / -0
    $$Depreciation = \dfrac {\text {Cost of Asset less Scrap Value}}{\text {Estimated Working  ____________ of Asset}}$$.
    Solution
    Following are the three important factors which are kept in mind while calculating depreciation:
    1) Cost of Asset
    2) Scrap Value of the asset 
    3) Estimated working life of asset

    Depreciation is calculated as per below formula:

    Depreciation = Cost of Asset - Scrap Value
                             ------------------------------------------------
                              Estimated Working Life of Asset
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