Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 35

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Weekly Quiz Competition

Question 1
1 / -0

The main objective of providing depreciation is to ___________.

A
create secret reserves

B
reduce the book value of assets

C
value the assets properly

D
allocate cost of the assets

Solution

It is necessary to distribute the cost of a fixed asset, less the scrap or salvage value after the useful life of the asset is over, in such a way so as to allocate it as equitably as possible to the periods during which the benefits are received from the use of fixed assets. This system of procedure is called depreciation accounting.

Question 2

1 / -0

A Co.purchased a new machine and made the following payments in relation of it:

	Rs.	Rs.
Cost as per supplier's list Less: Agree discount	$5,20,000$ $52,000$	$4,68,000$
Delivery charges		$12,000$
Erection charges		$15,000$
Annual maintenance charges		$35,000$
Additional components to increase capacity of the machine		$45,000$
Annual insurance premium		$15,000$

The cost of machine is

Rs. $5,40,000$

Rs. $5,45,000$

Rs. $4,70,000$

Rs. $5,50,000$

Question 3
1 / -0

Original cost of a machine was Rs. $2,52,000$ ; Salvage value was $12,000$ . Useful Life was 6 years, Annual depreciation under Straight Line Method will be __________.

A
$Rs.42,000$

B
$Rs.40,000$

C
$Rs.30,000$

D
$Rs.28,000$

Solution

Under straight line method of depreciation, depreciation expense is calculated as below:
Depreciation = (Cost of Asset - Scrap value)/ Estimated useful life
Depreciation = (Rs. 252000 - Rs. 12000) / 6 years
Depreciation = Rs. 240000 / 6 years
Depreciation = Rs. 40000
Question 4
1 / -0

In the books of D Ltd. the machinery account shows a debit balance of Rs. $60,000$ as on April $1, 2003$ . The machinery was sold on September $30$ , $2004$ for Rs. $30,000$ . The company charges depreciation @ $20\%$ p.a. on diminishing balance method. Profit/Loss on sale will be ____________.

A
$13,200$ Profit

B
$13,200$ loss

C
$6,800$ profit

D
$6,800$ loss
Question 5
1 / -0

Suraj Ltd. purchased a machine on 1.1.2003 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value after 5 years Rs 5,000. On 1.7.2003, expenses for repairs were incurred to the extent of Rs 2000. Depreciation is provided under straight line method. Depreciation rate = 10%. Annual Depreciation = _________

A
Rs 13,000

B
Rs 17,000

C
Rs 21,000

D
Rs 25,000

Solution

Option A is the correct one.
here rate of depreciation given as 10% p.a.
Cost of assets 120000+Installation exp 10000=130000
130000*10%=13000
Note:repairs on machinery are revenue expenses not included in the cost of assets.

Question 6

1 / -0

Reducing balance method of depreciation is ____________.

where amount of depreciation does not change from year to year

where amount of depreciation increases every year

where the amount of depreciation decreases every year

none of the above

Solution

Where the amount of depreciation decreases every year.

In written down value method, the depreciation is provided at a predetermined percentage, on the balance cost of asset after deducting the depreciation previously charged. It means under this method, the amount of depreciation changes every year.

For e.g. Cost of asset Rs. 100000

Rate of depreciation 10%

The amount of depreciation for 3 years is calculated as shown below:

Year	Balance cost of asset Rs.	Depreciation	Written down Value (Rs.)
1	100000	10000	90000
2	90000	9000	81000
3	81000	8100	72900

Question 7
1 / -0

An asset was purchased for Rs 10,000 on which depreciation was provided @ 5% SLM method. The WDV of the asset at the end of two years is _________.

A
Rs 7,500

B
Rs 8,000

C
Rs 8,500

D
Rs 9,000

Solution

Option D is the correct one.
10000-500(5%*10000)=9500
9500-500=9000.
Question 8
1 / -0

Which of the following terms is used to describe the process of writing down the long-term investments in intangible assets?

A
Amortisation

B
Depreciation

C
Depletion

D
Dilapidation

Solution

Amortization can refer to the process of paying off debt over time in regular instalments of interest and principal sufficient to repay the loan in full by its maturity date. With mortgage and auto loan payments, a higher percentage of the flat monthly payment goes toward interest early in the loan. With each subsequent payment, a greater percentage of the payment goes toward the loan's principal.
Question 9
1 / -0

The cost of a machinery having a life span of $5$ years is $Rs. 1,00,000$ . It has a scrap value of $Rs. 10,000$ . The amount of depreciation under the sum of digits method in the first year will be:

A
$Rs. 16000$

B
$Rs. 18000$

C
$Rs. 30000$

D
$Rs. 25000$

Solution

Using Sum of Digits method:
Adding number of years:1+2+3+4+5=15
Therefore, ( $Rs.1,00,000$ - $Rs.10,000$ ) X remaining number of years i.e 5
= $90,000$ X $5$ = $Rs.4,50,000$ divide by the sum of digits of the useful life i.e 15= $Rs.4,50,000$ / $15$ = $Rs.30,000$
Question 10
1 / -0

J.P. Ltd. purchased a machine for Rs. 15,000 on 1st April 1997, Depreciation is .provided @ 10% on written down value method. Depreciation for 1998-99 will be:

A
Rs. 750

B
Rs. 1,350

C
Rs. 1000

D
Rs. 1,900

Solution

Calculation of depreciation under WDV method :
Original cost of asset Rs. 15000
Less : depreciation @ 10% p.a for first year (1500)
WDV of Asset for second year 13500
Less : depreciation @ 10% p.a for second year (1350)
WDV of Asset for third year 12150

Therefore, depreciation for second year under written down value method of machine cost Rs. 15000 @ 10% is Rs. 1350

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 35

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Depreciation Provisions and Reserves Test - 35

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Question 1

create secret reserves

reduce the book value of assets

value the assets properly

allocate cost of the assets

Solution

Question 2

Rs. 5,40,0005,40,0005,40,000

Rs. 5,45,0005,45,0005,45,000

Rs. 4,70,0004,70,0004,70,000

Rs. 5,50,0005,50,0005,50,000

Question 3

Rs.42,000Rs.42,000Rs.42,000

Rs.40,000Rs.40,000Rs.40,000

Rs.30,000Rs.30,000Rs.30,000

Rs.28,000Rs.28,000Rs.28,000

Solution

Question 4

13,20013,20013,200 Profit

13,20013,20013,200 loss

6,8006,8006,800 profit

6,8006,8006,800 loss

Question 5

Rs 13,000

Rs 17,000

Rs 21,000

Rs 25,000

Solution

Question 6

where amount of depreciation does not change from year to year

where amount of depreciation increases every year

where the amount of depreciation decreases every year

none of the above

Solution

Question 7

Rs 7,500

Rs 8,000

Rs 8,500

Rs 9,000

Solution

Question 8

Amortisation

Depreciation

Depletion

Dilapidation

Solution

Question 9

Rs.16000Rs. 16000Rs.16000

Rs.18000Rs. 18000Rs.18000

Rs.30000Rs. 30000Rs.30000

Rs.25000Rs. 25000Rs.25000

Solution

Question 10

Rs. 750

Rs. 1,350

Rs. 1000

Rs. 1,900

Solution

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Rs. $5,40,000$

Rs. $5,45,000$

Rs. $4,70,000$

Rs. $5,50,000$

$Rs.42,000$

$Rs.40,000$

$Rs.30,000$

$Rs.28,000$

$13,200$ Profit

$13,200$ loss

$6,800$ profit

$6,800$ loss

$Rs. 16000$

$Rs. 18000$

$Rs. 30000$

$Rs. 25000$