Depreciation Test 4

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Depreciation Test 4

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Question 1
1 / -0

The amount of depreciation goes on decreasing in every year under the _________ method.

A
Fixed Instalment

B
Straight line

C
Revaluation

D
Written down value

Solution

Under written down value 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 2
1 / -0

The part of the depreciable cost of an asset which is yet to be written off is known as ____________.

A
Residual Value

B
Written Down Value

C
Closing Value

D
None of the Above

Solution

Assets are depreciated every year by making an entry in the books of account by debit to depreciation account and giving a credit to the respective asset account. Thereby, the value of asset decrease every year.

After charging the depreciation, the balance value is called as written down value which need to be carried forward to the next year.

The part which is yet to be written off is known as written down value.
Question 3
1 / -0

____________ is a method that spreads the depreciable value evenly over the useful life of an asset.

A
SLM

B
DDB

C
WDV

D
None of the above

Solution

Straight line depreciation is the default method used to gradually reduce the carrying amount of a fixed asset over its useful life. The method is designed to reflect the consumption pattern of the underlying asset, and is used when there is no particular pattern to the manner in which the asset is to be used overtime.
Question 4
1 / -0

___________ method is normally recommended for amortization of intangible assets.

A
SYD

B
SLM

C
WDV

D
DDB

Solution

An intangible asset is a non-physical asset that has useful life of greater than one year. If an intangible asset has a finite useful life, you should amortize it over that useful life. Intangible assets are usually not considered to have any residual value, so the full amount of the asset is typically amortized. SLM is normally recommended for amortisation of intangible assets.
Question 5
1 / -0

____________ method has smallest depreciation in the first year.

A
Double declining

B
SLM

C
Sum of digits

D
Reducing

Solution

b'SLM method has smallest depreciation in the first year. This is the simplest method of all. It involves simple allocation of an even rate of depreciation every year over the useful life of the asset.'
Question 6
1 / -0

Under diminishing balance method, annual depreciation ___________.

A
Increases every year

B
Decreases every year

C
Is constant every year

D
None of the above

Solution

Under diminishing balance method, the amount of depreciation is calculated as a fixed percentage of the reducing or diminishing value of the asset standing in the books at the beginning of the year, so as to bring down the book value of the asset to its residual value. The amount of depreciation goes on decreasing every year.
Question 7
1 / -0

_________ is not a method of depreciation.

A
Straight line method

B
Replacement method

C
Reducing balance

D
Revaluation

Solution

There are several methods of depreciation but only two that are widely recognised by IRS:
1. Straight line method
2.Reducing balance method
3. Double Declining balance method
4. Considerations
5. Revaluation etc.
Question 8
1 / -0

A Principal objection to SLM of depreciation is that it ___________.

A
provides for declining productivity of an asset

B
ignores variations in the rate of assets use

C
tends to result in a constant rate of return on a diminishing investment base

D
ives smaller periodic write offs than decreasing charge method

Solution

Straight line depreciation is the default method used to gradually reduce the carrying amount of a fixed asset over its useful life. The method is designed to reflect the consumption pattern of the underlying asset, and is used when there is no particular pattern to the manner in which the asset is to be used overtime. Use of the straight-line method is highly recommended, since it is the easiest depreciation method to calculate. It ignores variation in the rate of assets use.
Question 9
1 / -0

If the annual depreciation charge on an asset for three years is Rs. $$6000$$, Rs. $$5400$$, Rs. $$4860$$. Discuss the method of depreciation followed by the company.
A

Sum-of-the-Years' Digits Method
B

Straight Line Method
C
Written Down Value Method

D
Unit of Production Method

Solution

WDV (Written Down Value) is a method of depreciation in which a fixed rate of depreciation is charged on the book value of the asset, over its useful life. The amount of depreciation goes on decreasing every year. In the given question the amount of depreciation decreased in every year hence, company is following WDV method of depreciation.
Question 10
1 / -0

__________ method has greatest depreciation in the first year.

A
SLM

B
Double declining

C
Sum of digits

D
Reducing

Solution

Companies often use double declining method of depreciation for tax purposes. Because the depreciation expense are larger in the early periods of the assets's useful life, the tax savings are greater in the beginning of the depreciation cycle and the tax benefits come sooner.

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Depreciation Test 4

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Depreciation Test 4

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SHARING IS CARING

Question 1

Fixed Instalment

Straight line

Revaluation

Written down value

Solution

Question 2

Residual Value

Written Down Value

Closing Value

None of the Above

Solution

Question 3

SLM

DDB

WDV

None of the above

Solution

Question 4

SYD

SLM

WDV

DDB

Solution

Question 5

Double declining

SLM

Sum of digits

Reducing

Solution

Question 6

Increases every year

Decreases every year

Is constant every year

None of the above

Solution

Question 7

Straight line method

Replacement method

Reducing balance

Revaluation

Solution

Question 8

provides for declining productivity of an asset

ignores variations in the rate of assets use

tends to result in a constant rate of return on a diminishing investment base

ives smaller periodic write offs than decreasing charge method

Solution

Question 9

Sum-of-the-Years' Digits Method

Straight Line Method

Written Down Value Method

Unit of Production Method

Solution

Question 10

SLM

Double declining

Sum of digits

Reducing

Solution

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