Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 22

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Weekly Quiz Competition

Question 1
1 / -0

___________ is created to provide funds for redemption of debentures.

A
Dividend Equalisation Reserve

B
Debenture Redemption Reserve

C
Redemption Fund

D
None

Solution

According to the amendments in Indian Companies Act, 1956 in 2000, it is stated that Indian corporation who issue debentures must maintain a reserve to protect the investors against possible default by the company. This reserve is known as debenture redemption reserve. It states that an adequate amount must be transferred from profits every year to this reserve until issued debentures are redeemed.
Question 2
1 / -0

Original cost of asset : 80,000 scrap value : 10,000 Life of asset : 10 years
calculate annual depreciation ______.

A
7000

B
5000

C
8000

D
None

Solution

Depreciation has been defines as "the diminution in the utility or value of an asset, due to natural wear and tear, exhaustio of the subject matter, effluxion of time accident, etc. There are various methods of calcuating depreciation .
Formula for depreciation when scrap value is given and rate of depreciation is not given is:
Depreciation = (Original cost - Scrap value) / Useful life of asset
In the given question,
Original cost of asset = Rs. 80000
Scrap value = Rs. 10000
useful life of asset = 10 Years
Depreciation = Rs. (80000 - 10000) / 10
Depreciation = Rs. 7000
Question 3
1 / -0

Depreciation Account is Transferred to ___________account at the end of accounting year.

A
Trading Account

B
Asset Account

C
Profit and loss

D
None

Solution

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence expiration of legal rights or any other cause. Depreciation does not result in cash out flow. Although, depreciation is a non cash expenditure, it is transfer to profit and loss A/c at the year end.
Question 4
1 / -0

When Provision for depreciation is maintain the total accumulated depreciation is only transferred to asset during its ___________.

A
Disposal

B
Purchases

C
Extension

D
None
Question 5
1 / -0

Depreciation is charged to ___________ account.

A
Expense

B
Profit and loss

C
Trading

D
None of the above

Solution

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence expiration of legal rights or any other cause. Depreciation does not result in cash out flow. Although, depreciation is a non cash expenditure, it is transfer to profit and loss A/c at the year end.
Question 6
1 / -0

Original cost of asset $$800000$$
Written down value : $$500000$$
Rate of depreciation : $$10$$%
Calculate depreciation under written down value.

A
$$50,000$$

B
$$45,000$$

C
$$55,000$$

D
None of these

Solution

Depreciation under written down value method is calculated on the basis of written down vakue of asset.
Formula for charging depreciation under written down value method is:
Depreciation = Written doen value of assets * Rate of depreciation
Depreciation = Rs. 500000 * 10%
Depreciation = Rs.50000
Question 7
1 / -0

When depreciation account is maintained annual depreciation is charged to _________.

A
Profit and loss A/c

B
Asset A/c

C
Trading A/c

D
None of the Above

Solution

Option B is correct One.
The accumulated depreciation account is an asset account with a credit balance (also known as a contra asset account); this means that it appears on the balance sheet as a reduction from the gross amount of fixed assets reported.
Question 8
1 / -0

__________ is accumulated in a separate account instead of being adjusted in asset account under provision method.

A
Cost

B
Depreciation

C
Expenses

D
None

Solution

When the depreciation is charged by creating accumulated depreciation account, following journal entry is passed:

Depreciation A/c Dr.
To Accumulated Depreciation A/c

Under accumulated depreciation method, a separate account is created for accumulation of depreciation instead of being adjusted in asset a/c.
Question 9
1 / -0

It must be noted that the amount of provision for expenses and loss is a charge against the revenue of the __________ year.

A
Current

B
Next

C
Previous

D
None

Solution

Current.
Provision is an amount set aside out of current earnings considered necessary to provide for all expenses and losses that are expected to arise out of transactions entered into, during the accounting period. Provision is made following the prudence concept of accounting which holds "provide for anticipated expense and losses but do not provide for anticipated incomes."
Question 10
1 / -0

_________ is made to know liability or expense pertaining to current accounting period.

A
Provision

B
Reserve

C
Appropriation

D
None

Solution

The term provision refers to any of the following amounts :
1. The amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets; or
2. The amount retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy.

Provision is created to cover a loss in the value of assets, or a loss or expenses, the amount of which cannot be determined with substantial accuracy.

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Depreciation Provisions and Reserves Test - 22

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Depreciation Provisions and Reserves Test - 22

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Question 1

Dividend Equalisation Reserve

Debenture Redemption Reserve

Redemption Fund

None

Solution

Question 2

7000

5000

8000

None

Solution

Question 3

Trading Account

Asset Account

Profit and loss

None

Solution

Question 4

Disposal

Purchases

Extension

None

Question 5

Expense

Profit and loss

Trading

None of the above

Solution

Question 6

$$50,000$$

$$45,000$$

$$55,000$$

None of these

Solution

Question 7

Profit and loss A/c

Asset A/c

Trading A/c

None of the Above

Solution

Question 8

Cost

Depreciation

Expenses

None

Solution

Question 9

Current

Next

Previous

None

Solution

Question 10

Provision

Reserve

Appropriation

None

Solution

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