Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 12

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Weekly Quiz Competition

Question 1
1 / -0

Depreciation is deducted from the concerned _________.

A
Liability

B
Asset

C
Expense

D
Income

Solution

Depreciation is loss in the value of assets due to its usage. Hence amount of depreciation to be debited to the profit & loss account and value of the particular asset to be reduced.
Question 2
1 / -0

If the present cost of the car is $$Rs. 1,00,000$$ residual value at the end of the 5th year is $$Rs. 20,000$$, the monthly depreciation is _________.

A
$$Rs. 20,000$$

B
$$Rs. 16,000$$

C
$$Rs. 1,333$$

D
$$Rs. 17,333$$

Solution

Cost of the car is Rs.100000
Less: Residual value Rs.20000
Depreciation charged in 5 years Rs.80000
Depreciation per month will be Rs.80000/60 months
Depreciation per month will be Rs.1333/-
Question 3
1 / -0

An asset is never reduced to zero in the _______________.

A
Fixed instalment method.

B
Reducing balance method.

C
Annuity method.

D
Sum of years method.

Solution

Under reducing balance method of Depreciation, Depreciation is calculated at the fixed rate on the reducing balance of the asset therefore, the value of an asset is never zero under this method
Question 4
1 / -0

Depreciation is a charge against _______.

A
Profit

B
Assets

C
Company

D
Books of A/c

Solution

Depreciation is a reserve but is a charge against profit since it is created for the replacement of an asset. Hence, both reserves and provisions can arise as a charge against profits or as an appropriation out of profit, depending upon the nature of provision or reserve.
Question 5
1 / -0

Which one of the following depreciation methods is most suitable for a coal mine?

A
Diminishing balance method

B
Depletion method

C
Fixed instalment method

D
Sum of year's digits method

Solution

The depletion method of depreciation is most suitable for coal mine. This method is specially used for those assets which deplete with use. The cost of the asset is divided by total workable deposits. For example :
If a mine has 2 lakh tons of coal and the value of mine is Rs. 5 lakhs, each ton of coal will cost Rs. 2½. The quantity of coal taken out of the mine in a period will be multiplied by the rate per ton, i.e., Rs. 2½ and the resultant figure will be the amount of depreciation.
Question 6
1 / -0

The purpose of depreciation is to _____________.

A
Reduce fixed assets to market value each year

B
Save income tax and wealth tax

C
Reduce fixed assets to the standard value

D
Allocate the cost of fixed asset

Solution

The purpose of depreciation is to match the cost of a productive asset, that has a useful life of more than a year, to the revenues earned by using the asset. The asset's cost is usually spread over the years in which the asset is used.
Depreciation is an allocation process in order to achieve the matching principle.
Question 7
1 / -0

The reduction in the value of the fixed assets which can arise due to time factor is:

A
Discount

B
Depreciation

C
Reduction

D
None of these

Solution

Fixed assets are those assets that have a long useful life. These assets get deteriorated due to their usage along with passes of time and looses their value too. This reduction in the value of assets due to usage and time is called depreciation.
Depreciation has to be charged to the profit & loss account as an expense and the value of the assets to be reduced while showing in the balance sheet.
Question 8
1 / -0

If the total charge of depreciation and maintenance is considered as the method which would provide a uniform charge is?

A
Annuity method

B
Straight line method

C
Diminishing balance method

D
Insurance policy method

Solution

Straight line method of depreciation charges uniform or equal amount of depreciation every year on the fixed assets. Under this method, the original cost less residual value of the asset is distributed over the estimated useful life of the asset.
Thus, at the end of the useful life of the asset , the value of the asset becomes Nil in the books of accounts.
Question 9
1 / -0

The amount of depreciation under straight line method vis-vis written down value method, when the rate of depreciation is same, would be:

A
Equal in all years

B
Equal in the first year but higher is subsequent years

C
Equal in the first year but lower in subsequent years

D
Lower in the first year but equal in subsequent years

Solution

There are two most commonly used method of depreciation i.e., the Straight-line method and the written down value method.

Under the straight-line method of depreciation, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each accounting period over the expected useful life of the asset.

Under the 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 the asset.
Under this method, the rate of depreciation remains constant year after year whereas the amount of depreciation goes on decreasing.
From the above definitions, it is concluded that depreciation under SLM and WDV when the rate of depreciation is the same, would be equal in the first year but higher in subsequent years.
Question 10
1 / -0

An asset is purchased for Rs. 50,000 on which depreciation is to be provided annually according to the straight line method. The useful life to the asset is 10 years and the residual value is Rs. 10,000. The rate of depreciation is?

A
20%

B
18%

C
10%

D
8%

Solution

Depreciation = (Cost price - scrap value)/ Useful life of an asset
Rate of depreciation = Depreciation value/ Cost price of asset
Where,
Cost price = Rs. 50,000, Scrap value = Rs. 10,000, Useful life of asset = 10 years
Depreciation = Rs. (50000 - 10000)/ 10 years
Depreciation = Rs 4000
Rate of depreciation = Rs. (4000 / 50000) * 100
Rate of depreciation = 8%

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 12

Result

Depreciation Provisions and Reserves Test - 12

Score

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Rank

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SHARING IS CARING

Question 1

Liability

Asset

Expense

Income

Solution

Question 2

$$Rs. 20,000$$

$$Rs. 16,000$$

$$Rs. 1,333$$

$$Rs. 17,333$$

Solution

Question 3

Fixed instalment method.

Reducing balance method.

Annuity method.

Sum of years method.

Solution

Question 4

Profit

Assets

Company

Books of A/c

Solution

Question 5

Diminishing balance method

Depletion method

Fixed instalment method

Sum of year's digits method

Solution

Question 6

Reduce fixed assets to market value each year

Save income tax and wealth tax

Reduce fixed assets to the standard value

Allocate the cost of fixed asset

Solution

Question 7

Discount

Depreciation

Reduction

None of these

Solution

Question 8

Annuity method

Straight line method

Diminishing balance method

Insurance policy method

Solution

Question 9

Equal in all years

Equal in the first year but higher is subsequent years

Equal in the first year but lower in subsequent years

Lower in the first year but equal in subsequent years

Solution

Question 10

20%

18%

10%

8%

Solution

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