Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 24

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Question 1
1 / -0

Under ________ method, depreciation is calculated on written down value.

A
Fixed Instalment

B
Reducing Balance

C
Revaluation

D
Depletion

Solution

Under written down value method, depreciation is charged on the written down value of the asset every year. In this method, the amount of depreciation changes every year and get reduces as written down value decreases every year.
For example, Cost of asset is Rs.10000 depreciation 10% on W.D.V. method.

Cost of Asset; Rs.10000
Less: Depreciation for year I @10% Rs. 1000
------------------
W.D.V of asset on year II Rs.9000
Less: Depreciation for year II @10% Rs. 900

and so on...
Question 2
1 / -0

Under ___________ system, the amount of depreciation remains constant every year.

A
Fixed Instalment

B
Reducing Balance

C
Insurance Policy

D
Annuity

Solution

Under the Fixed Installment system, depreciation is charged on the basis of its original cost reducing by the scrap value and dividing the balance value on the estimated life of the asset. In such a system, depreciation will remain fixed every year.
Below is the example:

Depreciation= Original Cost- Scrap Value
Estimated Life of asset
= Rs.100000 - Rs.20000
----------------------------------
5 years
Depreciation per year will be Rs.16000
Question 3
1 / -0

The amount realised at the end of working life of an asset ___________.

A
Residual value

B
Market price

C
Original cost

D
Written down value

Solution

Every assets has its estimated life of working. After the life, the asset must be disposed off. On disposal, organization may receive some amount on sale of such asset.
The value realized at the end of working life of an asset is called residual value.
Question 4
1 / -0

Reserves arising from capital receipts are known as _________.

A
Capital Reserves

B
Reserve Fund

C
Secret Reserve

D
General Reserve

Solution

Capital reserves.
Capital Reserves are set aside out of capital profits and are normally not available for distribution as dividend. In other words, reserves created out of capital profits and which are not readily available for distribution of dividend among the shareholders is called Capital Reserves.
Example of capital reserves are Profit prior to incorportion, profit on redemption of debentures, profit on slae of fixed assets, etc.
Question 5
1 / -0

Gradual and permanent decrease in the value of an asset is known as _________.

A
Loss

B
Profit

C
Depreciation

D
Scrap

Solution

Depreciation is a reduction in the value of fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a charge on profit & loss account, and debited to profit & loss account.

Gradual and permanent decrease in the value of an asset is known as depreciation.
Question 6
1 / -0

The amount of depreciation goes on decreasing in every year under the _________ method.

A
Fixed Instalment

B
Straight line

C
Revaluation

D
Written down value

Solution

Under written down value method of depreciation, the depreciation is charged on the written down value of the asset every year. In such case, depreciation amount changes every year and get reduces as written down value decreases every year.

Below is the example:

Original Cost of Asset: Rs.10000
Less: Depreciation @10% Year I Rs. 1000
---------------------
Written down value Rs.9000
Less: Depreciation @10% Year II Rs.900
---------------------
Written down value Rs.8100
Less : Depreciation @10% Year III Rs.810
Question 7
1 / -0

$$Depreciation = \dfrac {\text {Cost of Asset less Scrap Value}}{\text {Estimated Working ____________ of Asset}}$$.

A
Life

B
Hours

C
Days

D
Months

Solution

Following are the three important factors which are kept in mind while calculating depreciation:
1) Cost of Asset
2) Scrap Value of the asset
3) Estimated working life of asset

Depreciation is calculated as per below formula:

Depreciation = Cost of Asset - Scrap Value
------------------------------------------------
Estimated Working Life of Asset
Question 8
1 / -0

Depreciation arises because of _____________.

A
wear and tear

B
inflation

C
fall in the value of asset

D
profit

Solution

Depreciation is charged on a certain percentage on each of the asset every year. Depreciation arise due to wear and tear of the asset because of its usage.
Depreciation is an indirect cost and debited to profit & loss account and credited to the respective amount. Following entry will be passed:

Depreciation A/c Dr.
To Asset A/c
Question 9
1 / -0

The money value which is obtained after selling an asset is called __________.

A
Cost of sales

B
Scrap value

C
Sales

D
Purchase price
Solution
Below are the three main factors which affect the calculation of depreciation:
Cost of Asset
Scrap Value
Estimated life of asset
Depreciation is calculated by considering the scrap value of asset. The money value which is obtained after selling an asset is called scrap value.
Question 10
1 / -0

Depreciation is the _________ in the value of fixed assets due to its wear and tear.

A
Increase

B
Expansion

C
Addition

D
Reduction

Solution

Depreciation is a reduction in the value of fixed asset due to normal wear & tear, usage and obsolescence.
Depreciation is a charge on profit & loss account, and debited to profit & loss account.

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Depreciation Provisions and Reserves Test - 24

Result

Depreciation Provisions and Reserves Test - 24

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SHARING IS CARING

Question 1

Fixed Instalment

Reducing Balance

Revaluation

Depletion

Solution

Question 2

Fixed Instalment

Reducing Balance

Insurance Policy

Annuity

Solution

Question 3

Residual value

Market price

Original cost

Written down value

Solution

Question 4

Capital Reserves

Reserve Fund

Secret Reserve

General Reserve

Solution

Question 5

Loss

Profit

Depreciation

Scrap

Solution

Question 6

Fixed Instalment

Straight line

Revaluation

Written down value

Solution

Question 7

Life

Hours

Days

Months

Solution

Question 8

wear and tear

inflation

fall in the value of asset

profit

Solution

Question 9

Cost of sales

Scrap value

Sales

Purchase price

Solution

Question 10

Increase

Expansion

Addition

Reduction

Solution

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