Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 11

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Question 1
1 / -0

Which method of depreciation is suitable when expenditure on repairs and maintenance increases as the machine grows old?

A
Reducing Balance Method

B
Straight Line Method

C
Machine Hour Rate Method

D
Sinking Fund Method.

Solution

Under this Reducing balance method, depreciation will be calculated at a certain percentage each year on the balance of the asset which is brought forward from the previous year. Every year the installment of depreciation will reduce as the beginning balance of the asset in each year will reduce. It is usually adopted for plant and machinery.
Hence, this method is suitable when expenditure on repairs and maintainence increases as machine grows old.
Question 2
1 / -0

Depletion method is normally applied in case of _________ assets.

A
Intangible

B
Tangible

C
Wasting

D
Current

Solution

Wasting Assets are the assets that have a limited life and thus decreases in value (depreciates) over time.
The term depletion is used in the context of extraction of natural resources like mines, quarries, etc. that reduce the availability of the quantity of the material or asset.
Hence Depletion method of depreciation is normally applied in case of wasting assets.
Question 3
1 / -0

A company imported a machine on 01.07.2002 for Rs. $$64,000$$, paid customs duty and freight Rs. $$32,000$$ and incurred erection charges Rs. $$24,000$$. On 01.07.2004, one third portion of the imported machinery was sold for Rs. $$13,920$$. Depreciation is to be calculate at $$20$$% p.a on straight line basis. Profit/Loss on sale will be:

A
Rs. $$10,080$$ (Profit)

B
Rs. $$9,800$$ (Profit)

C
Rs. $$9,800$$ (Loss)

D
Rs. $$10,080$$ (Loss)

Solution
Question 4
1 / -0

For depreciation mines, the suitable method is:

A
Straight Line

B
WDV

C
Depletion

D
Annuity Method

Solution

Depletion method is used for charging the depreciation on Natural resources such as mines, quarries etc.
Question 5
1 / -0

In purchase method, the excess of net asset of the transferor company acquired by the transferee company over the purchase consideration should be recognized as ________.

A
P & L

B
Goodwill

C
General reserve

D
Capital reserve

Solution

For the purpose of accounting for amalgamation, we are essentially guided by AS-14 'Accounting for Amalgamations'. Para (3)g of AS 14 deines the term purchase consideration as "the aggregate of the shares and other securities issued and the payments made in the form of cash or other assets by the transferee companyto the sharegolders of the transferor company." in simple words it is the price apyable by the transferee company to the transferor companyfor taking overt the buiness of the transferor company.
There are two methods of accounting for amalgamation:
1. Pooling of interest method
2. Purchase method
Purchase method - In this method the assets and liabilities of the transferor company should be incorporated at their existing carrying amounts or the purchase consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation.
No reserves, other than statutory reserves, of the transferor company should
be incorporatedb in the financial statements of the transferee company.
Any excess of the amount of purchase consideration over the value of net assets of the transferor company acquired by the transferee company should be recognised as goodwill in the financial statement of the transferee comapany. Any short fall should be shown as a capital reserve.
Question 6
1 / -0

Depreciation is provided on _________.

A
Current assets

B
Liquid assets

C
Fictitious assets

D
Fixed assets

Solution

Fixed assets are those assets that provide long term benefits to the organization and are not meant to be sold in the course of business. Hence these are recorded in the balance sheet. A portion of the cost of these assets is charged to the profit & loss account every year which is termed as depreciation.
Question 7
1 / -0

Which of the following asset does not depreciate?

A
Machinery and equipment

B
Motor Vehicles

C
Land

D
Furniture

Solution

Every asset is having a useful life based on its usage and nature. A predetermined rate is defined for charging a proportion of the value of the assets every year to profit & loss account which is known as depreciation.
The land is an asset that will have an unlimited useful life and does not depreciate because of its use.
Question 8
1 / -0

Depreciation refers to

A
Closure of a plant due to lock out

B
Closure of a plant due to labour issues

C
Loss of equipment over time due to wear to tear

D
Destruction of plant in a fire accident

Solution

Depreciation means a decline in the value of fixed assets due to use, the passage of time or obsolescence or diminution in the intrinsic value of the asset due to use and/or lapse of time.
Question 9
1 / -0

The term depletion is used in relation to ___________.

A
Fixed assets

B
Wasting assets

C
Current assets

D
Intangible assets

Solution

Depletion is the systematic allocation of the costs related to natural resources like minerals, precious metals, wood, etc. Such natural resources are known as wasting assets. Depreciation of such wasting assets is known as depletion.
Question 10
1 / -0

Wages paid for erection of machinery are debited to ____________.

A
Wages Account

B
Machinery Account

C
Profit and Loss Account

D
Deferred Wages Account

Solution

All incidental charges incurred for installation of assets are charged to the cost of that asset. Wages paid on erection of machinery is a capital expenditure and will be debited to machinery account.

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 11

Result

Depreciation Provisions and Reserves Test - 11

Score

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Rank

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SHARING IS CARING

Question 1

Reducing Balance Method

Straight Line Method

Machine Hour Rate Method

Sinking Fund Method.

Solution

Question 2

Intangible

Tangible

Wasting

Current

Solution

Question 3

Rs. $$10,080$$ (Profit)

Rs. $$9,800$$ (Profit)

Rs. $$9,800$$ (Loss)

Rs. $$10,080$$ (Loss)

Solution

Question 4

Straight Line

WDV

Depletion

Annuity Method

Solution

Question 5

P & L

Goodwill

General reserve

Capital reserve

Solution

Question 6

Current assets

Liquid assets

Fictitious assets

Fixed assets

Solution

Question 7

Machinery and equipment

Motor Vehicles

Land

Furniture

Solution

Question 8

Closure of a plant due to lock out

Closure of a plant due to labour issues

Loss of equipment over time due to wear to tear

Destruction of plant in a fire accident

Solution

Question 9

Fixed assets

Wasting assets

Current assets

Intangible assets

Solution

Question 10

Wages Account

Machinery Account

Profit and Loss Account

Deferred Wages Account

Solution

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