Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 17

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Weekly Quiz Competition

Question 1
1 / -0

___________ is a charge against profit.

A
Liability

B
creditors

C
Provision

D
Reserve

Solution

The amount of provision for expense and loss is a charge against the profit of the current period. Creation of provision ensures proper matching of revenue and expenses and hence the calculation of true profits. Provisions are created by debiting the profit and loss accounts.
Unlike provisions, reserves are the appropriations of profit to strengthen the financial position of the business. Reserve is not a charge against profit as it is not created to cover any known liability or expected loss in the future.
Question 2
1 / -0

A fixed asset gets depreciated due to _____________.

A
Wear and tear

B
Efflux of time

C
Obsolescence

D
All of the above

Solution

The main causes of depreciation are :
1. Use of Asset - When an asset is used constantly then it leads to its wear and tear and thus fall in value.
2. Efflux of time - Certain intangible assets have a fixed life span such as Trade Marks, Patents or Copyrights etc. The value of such assets decreases anyway with the passage of time irrespective of the fact business enterprise is using them or not.
3. obsolescence - When a new product arrives in the market with more advanced technology then the value of the old asset decreases.
Question 3
1 / -0

The need for providing depreciation on fixed assets are ________.

A
To ascertain true profit & loss

B
To ascertain net cash

C
To comply the statutory requirements

D
Both A and C

Solution

NEED FOR PROVIDING DEPRECIATION
1. To ascertain true financial performance.
2. To present true and fair view of the financial position.
3. To ascertain the true cost of production.
4. To Comply with legal requirement.
5. To accumulate funds for replacement of assets.
Question 4
1 / -0

The Diminishing Balance Method of providing depreciation states ______________.

A
The amount on which depreciation is provided is reduced from year to year

B
The rate per cent and also the amount are reduced from year to year

C
The rate per cent at which depreciation is written of goes on declining from year to year

D
None of the above

Solution

Option A is correct. Under Diminishing balance method, depreciation is charged at a fixed percentage on the book value of the asset. Rate percent always remain same but the book value of asset on which depreciation is provided is reduced from year to year. Since the book value reduces every year hence the amount of depreciation also reduces every year.
Question 5
1 / -0

The amount realised at the end of working life of an asset is known as ____________ .

A
Residual value

B
Market price

C
Original cost

D
Written down value

Solution

In accounting, the residual value is an estimated amount that a company can acquire when they dispose off an asset at the end of its useful life
Question 6
1 / -0

Any reserve which is not apparent on the face of the balance sheet is known as _____________.

A
Secret reserve

B
Hidden reserve

C
Inner reserve

D
Any of these

Solution

"A reserve which is not visible on the balance sheet is called secret reserves." It is also known as "Hidden reserve" or "Inner reserve".
It is a surplus concealed. In case of a secret reserve existence the actual financial position of the business is better than shown in the balance sheet. In case of bank, insurance companies and financial institutions secret reserves are justified.
Question 7
1 / -0

The books value of an asset is obtained by deducting depreciation from its __________.

A
Market value

B
Market + Cost price

C
Cost

D
Scrap value

Solution

Book value is the value of a security or asset as entered in the firm's books. Book value is the value of an asset according to its balance sheet balances. An asset's initial book value is its acquisition cost. Every year depreciation is deducted from that value.
So the book value of an asset is obtained by deducting depreciation from its cost price.
Question 8
1 / -0

Which of the following is not an objective for Reserves?

A
Meeting a Future Contingency

B
Strengthening the general financial position of the business

C
Redeeming a long term liability

D
Appreciating asset

Solution

Reserves are created to strengthen the business organisation, for contingencies and liquidity. As per accounting principles assets can only be appreciated under re-constitutional conditions.
Question 9
1 / -0

Provision of depreciation helps to replace fixed assets when __________.

A
It becomes outdated

B
Its life is over

C
It becomes unproductive

D
All of the above
Solution
Depreciation is charge due to wear and tear of the asset due to usage. One of the method is to charge the depreciation by creating provision for depreciation.
Provision of depreciation helps to replace fixed asset when:
it becomes outdated
its life over
it becomes unproductive
Question 10
1 / -0

Which of the followings is not a capital reserve ?

A
Premium on the issue of shares.

B
Profits prior to incorporation.

C
Dividend equalization reserve.

D
Profit on the sale of fixed assets.

Solution

Dividend Equalization Reserve – It is revenue reserve that serves as a buffer between a certain dividend level and profits available. Sums are transferred to this reserve account in good years, and withdrawn from in poor years to maintain the dividend amount.

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 17

Result

Depreciation Provisions and Reserves Test - 17

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Rank

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SHARING IS CARING

Question 1

Liability

creditors

Provision

Reserve

Solution

Question 2

Wear and tear

Efflux of time

Obsolescence

All of the above

Solution

Question 3

To ascertain true profit & loss

To ascertain net cash

To comply the statutory requirements

Both A and C

Solution

Question 4

The amount on which depreciation is provided is reduced from year to year

The rate per cent and also the amount are reduced from year to year

The rate per cent at which depreciation is written of goes on declining from year to year

None of the above

Solution

Question 5

Residual value

Market price

Original cost

Written down value

Solution

Question 6

Secret reserve

Hidden reserve

Inner reserve

Any of these

Solution

Question 7

Market value

Market + Cost price

Cost

Scrap value

Solution

Question 8

Meeting a Future Contingency

Strengthening the general financial position of the business

Redeeming a long term liability

Appreciating asset

Solution

Question 9

It becomes outdated

Its life is over

It becomes unproductive

All of the above

Solution

Question 10

Premium on the issue of shares.

Profits prior to incorporation.

Dividend equalization reserve.

Profit on the sale of fixed assets.

Solution

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