Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 28

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Question 1
1 / -0

Non-charging of depreciation will result in ____________.

A
Non-disclosure of true and fair view of the Financial position

B
Over valuation of assets

C
Over statement of profit

D
All the three

Solution

If we do not charge depreciation, the value of asset will be over recorded in the books of accounts. If the asset value is higher than the actual value, then the books of accounts show a higher profit than earned which is not recommended. Because, financial position of a company is determined by the profit/loss shown in the books of accounts and decision making is based on that. So, negligence of depreciation may sometimes, hide the losses incurred in the business. So, to avoid this depreciation must be charged to the assets regularly.
Question 2
1 / -0

A Principal objection to SLM of depreciation is that it ___________.

A
provides for declining productivity of an asset

B
ignores variations in the rate of assets use

C
tends to result in a constant rate of return on a diminishing investment base

D
ives smaller periodic write offs than decreasing charge method

Solution

Straight line depreciation is the default method used to gradually reduce the carrying amount of a fixed asset over its useful life. The method is designed to reflect the consumption pattern of the underlying asset, and is used when there is no particular pattern to the manner in which the asset is to be used overtime. Use of the straight-line method is highly recommended, since it is the easiest depreciation method to calculate. It ignores variation in the rate of assets use.
Question 3
1 / -0

____________ is a method that spreads the depreciable value evenly over the useful life of an asset.

A
SLM

B
DDB

C
WDV

D
None of the above

Solution

Straight line depreciation is the default method used to gradually reduce the carrying amount of a fixed asset over its useful life. The method is designed to reflect the consumption pattern of the underlying asset, and is used when there is no particular pattern to the manner in which the asset is to be used overtime.
Question 4
1 / -0

An asset was shown in the Balance sheet during the last three years at $$Rs. 50000$$, $$Rs.45000$$ and $$Rs.40000$$, the depreciation for $$4th$$ year will be ___________.

A

$$Rs. 4,000$$

B
$$Rs. 5,000$$

C
$$Rs. 4,500$$

D
$$Rs. 3,980$$

Solution

The book value of last three years are Rs. 50,000, Rs. 45,000, and Rs. 40,000
The depreciation for the three year is constant which is Rs. 5,000 (i.e. Rs. 50,000 - Rs. 45,000)
As the amount of depreciation is constant for all the three years, the firm is using straight line method of depreciation.
Hence the amount of depreciation for the 4th year will be Rs. 5,000.
Question 5
1 / -0

An asset is subject to $$10\%$$ depreciation on reducing balance method. If the book value of the asset as on $$31.03.13$$ is Rs. $$45000$$. The annual depreciation for the year $$2014-15$$ amounted to _________.

A
Rs. $$4500$$

B
Rs. $$4050$$

C
Rs. $$5000$$

D
Rs. $$4800$$

Solution

rate of depreciation = 10% on WDV
The book value of the asset as on 31.03.13 is Rs. 45,000
Annual depreciation for the year 2014 is = 10% x Rs. 45,000 = Rs. 4,500
The book value of the asset as on 31.03.14 = Rs. 45,000 - Rs. 4,500 = Rs. 40,500
Annual depreciation for the year 2015 is = 10% x Rs. 40,500 = Rs. 4.050
Question 6
1 / -0

In the case of assets used for generation and distribution of power, the Income-tax Act prescribe which of the following method of depreciation.?

A
Sum of digits method

B
Straight line method

C
Annuity method

D
Depletion method

Solution

Straight line method.

Under Section 32(1)(i) in case of an undertaking engaged in generation and distribution of power, the depreciation will be allowed on actual cost (i.e., on straight line method) at the rates provided in Appendix IA read with Rule 5(IA) in respect of assets acquired on or after 1st April 1997. However,

1. Such undertaking however has the option to claim depreciation on written down value method at the rates provided in new Appendix I.

2. Such an option is to be exercised before the due date for furnishing the return of income tax u/s 139(1) for the year in which it begins to generate power.
Question 7
1 / -0

____________ method has smallest depreciation in the first year.

A
Double declining

B
SLM

C
Sum of digits

D
Reducing

Solution

b'SLM method has smallest depreciation in the first year. This is the simplest method of all. It involves simple allocation of an even rate of depreciation every year over the useful life of the asset.'
Question 8
1 / -0

____________ is disadvantage of written down method of depreciation.

A
The value of Asset can never be completely written off on the books of a/c

B
It is difficult to apply

C
It charges higher depreciation in the initial years.

D
It reduces profits in the initial years

Solution

The value of asset can never be completely written off on the books of a/c.
Written down value method of depreciation - According to this method, the depreciation is provided at a predetermined percentage, on the balance of cost of asset deducting the depreciation previously charged.
The main benefit of this method is that it recognizes the fact that in the initial years of the life of the asset, the repairs and maintenance cost is less, which goes on increasing gradually with the progressing life of asset. According to this method, the higher amount of deprecation in the initial years and a gradual decrease therein is counterbalanced by the lower amount of repairs and maintenance cost in the initial years and a gradual increase therein.
The main drawback or disadvantage of this method is that the written down value can never be zero.
Question 9
1 / -0

Under ____________ method charge to revenue is uniform every year.

A
WDV

B
SLM

C
Sinking fund method

D
Depletion method

Solution

According to this method, we write off the cost of the asset uniformly during its useful life. Therefore, we charge an equal amount of depreciation every year throughout the useful life of an asset.
Question 10
1 / -0

__________ method has greatest depreciation in the first year.

A
SLM

B
Double declining

C
Sum of digits

D
Reducing

Solution

Companies often use double declining method of depreciation for tax purposes. Because the depreciation expense are larger in the early periods of the assets's useful life, the tax savings are greater in the beginning of the depreciation cycle and the tax benefits come sooner.

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 28

Result

Depreciation Provisions and Reserves Test - 28

Score

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SHARING IS CARING

Question 1

Non-disclosure of true and fair view of the Financial position

Over valuation of assets

Over statement of profit

All the three

Solution

Question 2

provides for declining productivity of an asset

ignores variations in the rate of assets use

tends to result in a constant rate of return on a diminishing investment base

ives smaller periodic write offs than decreasing charge method

Solution

Question 3

SLM

DDB

WDV

None of the above

Solution

Question 4

$$Rs. 4,000$$

$$Rs. 5,000$$

$$Rs. 4,500$$

$$Rs. 3,980$$

Solution

Question 5

Rs. $$4500$$

Rs. $$4050$$

Rs. $$5000$$

Rs. $$4800$$

Solution

Question 6

Sum of digits method

Straight line method

Annuity method

Depletion method

Solution

Question 7

Double declining

SLM

Sum of digits

Reducing

Solution

Question 8

The value of Asset can never be completely written off on the books of a/c

It is difficult to apply

It charges higher depreciation in the initial years.

It reduces profits in the initial years

Solution

Question 9

WDV

SLM

Sinking fund method

Depletion method

Solution

Question 10

SLM

Double declining

Sum of digits

Reducing

Solution

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