Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 38

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Weekly Quiz Competition

Question 1
1 / -0

Depreciation is a ________ shrinkage in the book value of a fixed asset.

A
Permanent

B
Continuous

C
Gradual

D
Any of the above

Solution

solution:
Depreciation is defined as “a permanent, continuing and gradual shrinkage in the book value of a fixed asset due to use, wear and tear.
hence any of the above is right
hence the correct option: D
Question 2
1 / -0

On which of the following asset depreciation cannot be provided?

A
Building.

B
Land.

C
Mines.

D
Loose tools.

Solution

solution:
The land asset is not depreciated, because it is considered to have an infinite useful life.
During this useful life, they are depreciated, which reduces their cost to what they are supposed to be worth at the end of their useful lives
or we can say
Depreciation means decrease in value of property through wear, deterioration or obsolescence. In that sense, land cannot depreciate. Depreciation is allowable only on the value of superstructure on the land and not on the value of land.
hence the correct option B
Question 3
1 / -0

Under the diminishing balance method of providing depreciation, depreciation is charged__________.

A
at fixed rate on the reducing balance every year

B
at reducing rate on the fixed amount every year

C
at reducing rate on the reducing balance every year

D
none of the above

Solution

Option A is the correct one.
Under Reducing balance method, the value of the asset never reduces to zero. Depreciation is charged at a fixed percentage on the book value of the asset. As the book value reduces every year, it is also known as the Reducing Balance Method or Written-down Value Method.
Question 4
1 / -0

Which of the following is the normal balance of an accumulated depreciation account?

A
Debit balance.

B
Credit balance.

C
Nil balance.

D
(A) or (B).
Question 5
1 / -0

Which of the following expenses is NOT included in the acquisition cost of a plant and equipment?

A
Cost of site preparation.

B
Delivery and handling charges.

C
Installation costs.

D
Financing costs incurred subsequent to the period after plant and equipment is put to use.

Solution

The cost of equipment, vehicles, and furniture includes the purchase price, sales taxes, transportation fees, insurance paid to cover the item during shipment, assembly, installation, Delivery and handling charges and all other costs associated with making the item ready for use.
Question 6
1 / -0

If a concern proposes to discontinue its business from March 2015 and decides to dispose of all its assets within a period of $$4$$ months, the Balance Sheet as on March 31, 2015 should indicate the assets at their ______.

A
Historical cost

B
Net realizable value

C
Cost less depreciation

D
Cost price or market value, whichever is lower

Solution

Assets (or disposal groups) held for sale are not depreciated, and are measured at the lower of carrying amount and fair value less costs to sell (net realizable value), and are presented separately in the statement of financial position.
Question 7
1 / -0

XYZ firm has imported a machine from abroad. Which of the following is NOT the element of machine's cost?

A
Purchase price of machine.

B
Import duty.

C
Demurrage charges.

D
Refundable tax.

Solution

Cost (also known as original cost or historical cost) of an asset includes invoice price and other costs, which are necessary to put the asset in use or working condition. Besides the purchase price, it includes freight and transportation cost, transit insurance, installation cost, registration cost, commission paid on purchase of asset add items such as software, etc.
Refundable tax is not included in cost as it will be returned to the company.
Question 8
1 / -0

An alternative term used for accumulated depreciation expenses?

A
Provision for depreciation.

B
Cumulative depreciation.

C
Targeted depreciation.

D
Depletion.
Question 9
1 / -0

The number of production of similar units expected to be obtained from the use of an asset by an enterprise is called as ______.

A
Unit Life

B
Useful Life

C
Production Life

D
Expected Life

Solution

The number of production of similar units expected to be obtained from the use of an asset by an enterprise is called as Useful Life
Depreciation is a decrease in the value of the fixed assets due to wear and tear, obsolescence and passage of time.
Depreciation is charged only on the fixed Tangible Assets.
Question 10
1 / -0

Which of the following is/are disadvantage of fixed instalment method of charging depreciation?

A
The assumption that the asset shall be equally useful throughout its life seems to be illogical.

B
It does not take into account the effective utilization of the asset.

C
Depreciation remains constant under this method over the useful life of the asset, hence true financial results cannot be shown by this method if use of the asset differs from year to year.

D
All of the above.

Solution

All of the above are disadvantages of the Straight line Method.

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Depreciation Provisions and Reserves Test - 38

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Depreciation Provisions and Reserves Test - 38

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Question 1

Permanent

Continuous

Gradual

Any of the above

Solution

Question 2

Building.

Land.

Mines.

Loose tools.

Solution

Question 3

at fixed rate on the reducing balance every year

at reducing rate on the fixed amount every year

at reducing rate on the reducing balance every year

none of the above

Solution

Question 4

Debit balance.

Credit balance.

Nil balance.

(A) or (B).

Question 5

Cost of site preparation.

Delivery and handling charges.

Installation costs.

Financing costs incurred subsequent to the period after plant and equipment is put to use.

Solution

Question 6

Historical cost

Net realizable value

Cost less depreciation

Cost price or market value, whichever is lower

Solution

Question 7

Purchase price of machine.

Import duty.

Demurrage charges.

Refundable tax.

Solution

Question 8

Provision for depreciation.

Cumulative depreciation.

Targeted depreciation.

Depletion.

Question 9

Unit Life

Useful Life

Production Life

Expected Life

Solution

Question 10

The assumption that the asset shall be equally useful throughout its life seems to be illogical.

It does not take into account the effective utilization of the asset.

Depreciation remains constant under this method over the useful life of the asset, hence true financial results cannot be shown by this method if use of the asset differs from year to year.

All of the above.

Solution

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