Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 3

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Weekly Quiz Competition

Question 1
1 / -0

Cost of a fixed asset – Accumulated depreciation expenses of the fixed asset=?

A
Market value of fixed asset

B
Recoverable amount of a fixed asset

C
Historical cost of a fixed asset

D
Book value of fixed asset

Solution

Book value of an asset is a value at which asset is recorded in books. It is also known as written down value.
Question 2
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An increase in the value of fixed asset is referred to as:

A
Purchase of Asset

B
Appreciation

C
Market capitalization

D
Reserve depreciation

Solution

Appreciation is an increase in the value of an asset over time. The increase can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease over time.
Question 3
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The term _____ is generally used for the depreciation of natural resources

A
Appreciation

B
Disposal value

C
Depletion

D
Amortization

Solution

Depletion is an accounting techniqe used for allocation of value of natural resources.
Question 4
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When an asset is disposed off the procedure will be recorded in a separate account called :

A
Sales account

B
Reserves account

C
Profit account

D
Asset disposal account

Solution

When an asset is sold then the proceedings will be recorded in a separate account called asset disposal account. It enables to calculate the profit earned or loss incurred in the sale transactions.
Question 5
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Which journal entry to be passed for transferring the cost price of the asset sold to the asset disposal account?

A

Asset disposal account Dr

To Goods account

B

Disposal account Dr

To Asset account

C

Asset disposal account Dr

To Asset account

D

Asset disposal account Dr

To Sale account

Solution

By this entry, Asset account will be reduced by the amount transferred to asset disposal account. Further all entries related to disposal shall be entered into Asset disposal account to calculate net profit or loss from such disposal.
Question 6
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Which journal entry to be passed For transferring the provision for depreciation already charged on the asset sold from the provision for depreciation account to the asset disposal account?

A

Provision for depreciation account Dr.

To Asset disposal account

B

Depreciation account Dr.

To Asset disposal account

C

Provision account Dr.

To Asset disposal account

D

Provision account Dr.

To Asset disposal account

Solution

By this entry, provision for depreciation already charged on the asset sold shall be transferred to related asset disposal account.
Question 7
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Which of the following is the limitation of the Written down value ?

A
This method is suitable for fixed assets, which lasts for long

B
Income Tax Act accept this method for tax purposes;

C
As a large portion of cost is written-off in earlier years, loss due to obsolescence gets reduced;

D
The value of the asset can never be zero

Solution

Because depreciation is calculated on written down value. Every time depreciation amount shall be reduced but will never be exact zero.
Question 8
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Following are the provisions except Examples of provisions are :

A
Provision for liability

B
Provision for bad and doubtful debts;

C
Provision for depreciation;

D
Provision for taxation

Solution

If we use provision with liablity account, it will become a debit account. It means there is a reduction in liabilty and under the Prudence Concept, we do not underestimate liability or do not overstate income. Hence prudence concept do not allow provision for liability.
Question 9
1 / -0

Obsolescence means decrease in assets

A
Due to its use in business operations

B
Assets become out of fashion

C
Both

D
None

Solution

Obsolescence is a notable reduction in the utility of an inventory item or fixed asset. The determination of obsolescence typically results in a write-down of the inventory item or asset to reflect its reduced value
Question 10
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Depreciation is a process of

A
Valuation of charge

B
Valuation of assets

C
Allocation of cost

D
Valuation of Profit

Solution

In order to fullfill the matching concept, we allocate depreciation amount over the useful life of assets. Because we receive benefits over the useful life of asset. so charging of whole depreciation in one year will be wrong.

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Provision for depreciation account	Dr.
To Asset disposal account

Depreciation Provisions and Reserves Test - 3

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Depreciation Provisions and Reserves Test - 3

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Rank

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SHARING IS CARING

Question 1

Market value of fixed asset

Recoverable amount of a fixed asset

Historical cost of a fixed asset

Book value of fixed asset

Solution

Question 2

Purchase of Asset

Appreciation

Market capitalization

Reserve depreciation

Solution

Question 3

Appreciation

Disposal value

Depletion

Amortization

Solution

Question 4

Sales account

Reserves account

Profit account

Asset disposal account

Solution

Question 5

Asset disposal account Dr To Goods account

Disposal account Dr To Asset account

Asset disposal account Dr To Asset account

Asset disposal account Dr To Sale account

Solution

Question 6

Provision for depreciation account Dr. To Asset disposal account

Depreciation account Dr. To Asset disposal account

Provision account Dr. To Asset disposal account

Provision account Dr. To Asset disposal account

Solution

Question 7

This method is suitable for fixed assets, which lasts for long

Income Tax Act accept this method for tax purposes;

As a large portion of cost is written-off in earlier years, loss due to obsolescence gets reduced;

The value of the asset can never be zero

Solution

Question 8

Provision for liability

Provision for bad and doubtful debts;

Provision for depreciation;

Provision for taxation

Solution

Question 9

Due to its use in business operations

Assets become out of fashion

Both

None

Solution

Question 10

Valuation of charge

Valuation of assets

Allocation of cost

Valuation of Profit

Solution

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Asset disposal account Dr

To Goods account

Disposal account Dr

To Asset account

Asset disposal account Dr

To Asset account

Asset disposal account Dr

To Sale account

Provision for depreciation account Dr.

To Asset disposal account

Depreciation account Dr.

To Asset disposal account

Provision account Dr.

To Asset disposal account

Provision account Dr.

To Asset disposal account