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Depreciation Test 5

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Depreciation Test 5
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  • Question 1
    1 / -0
    Under ____________ method depreciation is calculated on book value.
    Solution
    Under reducing balance method, the depreciation is charged at a fixed rate like straight line method (also known as fixed instalment method)  But the rate of percentage is not calculated on the cost of asset as is done under fixed instalment method - it is calculated on the book value of asset.
  • Question 2
    1 / -0
    An asset was shown in the Balance sheet during the last three years at $$Rs. 50000$$, $$Rs.45000$$ and $$Rs.40000$$, the depreciation for $$4th$$ year will be ___________.
    Solution
    The book value of last three years are Rs. 50,000, Rs. 45,000, and Rs. 40,000
    The depreciation for the three year is constant which is  Rs. 5,000 (i.e. Rs. 50,000 - Rs. 45,000)
    As the amount of depreciation is constant for all the three years, the firm is using straight line method of depreciation.
    Hence the amount of depreciation for the 4th year will be Rs. 5,000.


  • Question 3
    1 / -0
    An asset is subject to $$10\%$$ depreciation on reducing balance method. If the book value of the asset as on $$31.03.13$$ is Rs. $$45000$$. The annual depreciation for the year $$2014-15$$ amounted to _________.
    Solution
    rate of depreciation = 10% on WDV
    The book value of the asset as on 31.03.13 is Rs. 45,000
    Annual depreciation for the year 2014 is = 10% x Rs. 45,000 = Rs. 4,500
    The book value of the asset as on 31.03.14 = Rs. 45,000 - Rs. 4,500 = Rs. 40,500
    Annual depreciation for the year 2015 is = 10% x Rs. 40,500 = Rs. 4.050 
  • Question 4
    1 / -0
    In the case of assets used for generation and distribution of power, the Income-tax Act  prescribe which of the following method of depreciation.?
    Solution

    Straight line method.

    Under Section 32(1)(i) in case of an undertaking engaged in generation and distribution of power, the depreciation will be allowed on actual cost (i.e., on straight line method) at the rates provided in Appendix IA read with Rule 5(IA) in respect of assets acquired on or after 1st April 1997. However,

    1. Such undertaking however has the option to claim depreciation on written down value method at the rates provided in new Appendix I.

    2. Such an option is to be exercised before the due date for furnishing the return of income tax u/s 139(1) for the year in which it begins to generate power. 

     

  • Question 5
    1 / -0
    ____________ is disadvantage of written down method of depreciation.
    Solution
    The value of asset can never be completely written off on the books of a/c.
    Written down value method of depreciation - According to this method, the depreciation is provided at a predetermined percentage, on the balance of cost of asset deducting the depreciation previously charged. 
    The main benefit of this method is that it recognizes the fact that in the initial years of the life of the asset, the repairs and maintenance cost is less, which goes on increasing gradually with the progressing life of asset. According to this method, the higher amount of deprecation in the initial years and a gradual decrease therein is counterbalanced by the lower amount of repairs and maintenance cost in the initial years and a gradual increase therein.
    The main drawback or disadvantage of this method is that the written down value can never be zero.
  • Question 6
    1 / -0
    Under which method of depreciation the depreciable cost of an asset is charged to profit and loss a/c in equal proportion during the working life of the asset ?
    Solution
    b'According to the SLM method, the cost of the assets is written off equally during its useful life. Therefore, an equal amount of depreciation is charged every year throughout the useful life of an asset.'
  • Question 7
    1 / -0
    In which of the following cases straight line method of depreciation is not appropriate?
    Solution
    Option A is the correct one.

    The maintenance expense to fixed assets ratio allows analysts to understand the age or condition of the company's equipment. An increase to a company's repairs and maintenance expense to fixed assets ratio over time can signal aging equipment or assets that are being pushed to their operating limits.

  • Question 8
    1 / -0
    The book value of an asset on $$1-4-2013$$ is Rs. $$80,000$$. The asset is sold on $$31-12-2013$$ for Rs. $$60,000$$. If the rate of depreciation is $$15\%$$ on written down value, what is the profit and loss on sale of the Asset.
    Solution
    Book value of the asset on 1-04-13 = Rs. 80,000
    Asset sold on 31-12-13 = Rs. 60,000
    Rate of depreciation = 15% on WDV
    Asset is used for 9 months.
    Depreciation of 9 months = Rs. 80,000 x 15% x (9/12) =  Rs. 9,000
    Book value of the asset on the date of sale = Rs. 80,000 - Rs. 9,000 = Rs. 71,000
    Loss on sale of asset = Rs. 71,000 - Rs. 60,000 = Rs. 11,000
  • Question 9
    1 / -0
    Which of the following is one of the objection against straight line method of depreciation?
    Solution
    Under straight line method of depreciation an equal amount of depreciation is charged every year throughout the life of the asset, making the calculation of depreciation and cost of comparison easy.
    The objection against this method of depreciation is that it ignores variation in the rate of use of assets. In this method the amount of depreciation in later years is high when the utility of the asset is reduced.
  • Question 10
    1 / -0
    Under ____________ method charge to revenue is uniform every year.
    Solution
    According to this method, we write off the cost of the asset uniformly during its useful life. Therefore, we charge an equal amount of depreciation every year throughout the useful life of an asset.
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