Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 39

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Weekly Quiz Competition

Question 1
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Which of the following statement is incorrect?

A
Depreciation is the expense charged to profit and loss account before arriving at the net profit for the year.

B
The cost of fixed asses in the form of depreciation has to be matched against the revenues of the years over which the asset is used.

C
Depreciation means appointment or allocation of the cost of the fixed asset over its useful life.

D
None of the above.

Solution

Depreciation. The value of fixed assets reduce after year because of usage and passage of time.
Therefore, decrease in their value is considered as an expense or loss incurred in earning revenue and like other expenses or losses, is charged to the Profit and Loss Account.

The reason for using depreciation is to match a portion of the cost of a fixed asset to the revenue that it generates; this is mandated under the matching principle, where you record revenues with their associated expenses in the same reporting period in order to give a complete picture of the results of a revenue

Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy.
Question 2
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Which of the following is a double entry for depreciation expenses?

A
Accumulated depreciation debit and depreciation expenses credit.

B
Depreciation expenses debit and accumulated depreciation credit.

C
Cash debit and depreciation expenses credit.

D
Depreciation expenses debit and cash credit.

Solution

Journal Entry for charging depreciation
Depreciation A/c Dr. XXX
To Provision for depreciation A/c XXX
(Being depreciation charged)
Therefore, B is the correct option.
Question 3
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Under ______ method depreciation is provided as a fixed percentage of the written down value of the asset.

A
Fixed instalment method

B
Annuity method

C
Reducing balance method

D
All of the above

Solution

Under the reducing balance method, the amount of depreciation is calculated by applying a fixed percentage on the written down value of the asset each year. In this way, the amount of depreciation each year is less than the amount provided for in the previous year. This is because the book value used to compute the depreciation expense is continually reduced from year to year.
Therefore, C is the correct option.
Question 4
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In the calculation of depreciation, all of the following items are actually estimates except: _____.

A
Useful life

B
Residual Value

C
Historical Cost

D
Salvage Value

Solution

The cost of the asset can be ascertained but the useful life, residual value and salvage value of the asset can not be ascertained therefore, it is estimated based on certain parameters.
Depreciation is a decrease in the value of the asset due to the passage of time, wear and tear or obsolescence.
Question 5
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For which of the following asset depreciation can be applied?
(I) Land
(II) Furniture
(III) Machinery

A
(II) and (III)

B
(II) only

C
(I) and (III)

D
All (I), (II) and (III)

Solution

Furniture and machinery are all tangible assets therefore, depreciation will be provided on them.
Depreciation is not provided on land though it is a tangible fixed asset as it has an infinite useful life.
Depreciation is a decrease in the value of the fixed asset due to wear and tear, the passage of time or obsolescence.
Depreciation is a non-cash expense.
Question 6
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Q Ltd. acquired machinery on 1st January 2011 at a cost of Rs. $$72,000$$ and spent Rs. $$8,000$$ for its installation. The firm writes off depreciation at $$10$$% p.a on the original cost every year. The books are closed on 31st December every year, Closing balance of machinery account for 1st and 2nd year as per fixed instalment method will be Rs. _______

A
$$72,000$$, $$64,000$$

B
$$74,000$$, $$66,600$$

C
$$74,000$$, $$72,000$$

D
$$74,000$$, $$66,000$$
Question 7
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Z Ltd. acquired machinery on 1st January 2011 at a cost of Rs. $$72,000$$ and spent Rs. $$8,000$$ for its installation. The firm writes off depreciation at $$10$$% p.a on the original cost every year. The books are closed on 31st December every year. Depreciation for 1st and 2nd year as per fixed instalment method will be Rs. ________

A
$$6,000$$,$$6,000$$

B
$$8,000$$, $$8,000$$

C
$$8,000$$, $$7,200$$

D
$$6,000$$, $$8,000$$
Question 8
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Which of the following method is applicable in case of wasting assets, i.e., mines, quarries, oil well etc.?

A
Inventory system of depreciation.

B
Machine hour rate.

C
Sum of years digit.

D
Depletion Method.

Solution

Option D is correct. Under this method, depreciation is charged on the basis of output extracted in comparison with the estimated total contents of mines. Steps are : -
1) Total contents of the assets are first estimated in terms of tons, gallons etc.
2) Thereafter the total cost of the asset is divided by the total units of contents in order to find out the rate of depreciation.
3)After that, amount of depreciation is calculated on the basis of quantity extracted for a particular year by multiplying with the rate of depreciation so ascertained.
Question 9
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Which of the following is odd with reference to depreciation ?

A
Land.

B
Machinery.

C
Furniture.

D
None if the above.

Solution

solution:
Out of all the above mentioned only land is not depreciable, rest all will be depreciable , Depreciation is charged on those assets which are diminishing in nature and have a limited useful life span.
Land can never diminish i.e it can never cease to exist like the other assets viz., plant and machinery, equipments, etc. Hence, depreciation is never charged on Land.
hence the correct option: A
Question 10
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Z Ltd purchased a machine on 1.1.2012 for Rs. $$12,000$$. Installation expenses were Rs. $$1,000$$. Residual value after 5 years Rs. $$500$$. Depreciation is provided under SLM. Depreciation rate is $$10$$% p.a Annual depreciation = ?

A
$$1,700$$

B
$$1,300$$

C
$$2,100$$

D
$$2,500$$

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 39

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Depreciation Provisions and Reserves Test - 39

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Question 1

Depreciation is the expense charged to profit and loss account before arriving at the net profit for the year.

The cost of fixed asses in the form of depreciation has to be matched against the revenues of the years over which the asset is used.

Depreciation means appointment or allocation of the cost of the fixed asset over its useful life.

None of the above.

Solution

Question 2

Accumulated depreciation debit and depreciation expenses credit.

Depreciation expenses debit and accumulated depreciation credit.

Cash debit and depreciation expenses credit.

Depreciation expenses debit and cash credit.

Solution

Question 3

Fixed instalment method

Annuity method

Reducing balance method

All of the above

Solution

Question 4

Useful life

Residual Value

Historical Cost

Salvage Value

Solution

Question 5

(II) and (III)

(II) only

(I) and (III)

All (I), (II) and (III)

Solution

Question 6

$$72,000$$, $$64,000$$

$$74,000$$, $$66,600$$

$$74,000$$, $$72,000$$

$$74,000$$, $$66,000$$

Question 7

$$6,000$$,$$6,000$$

$$8,000$$, $$8,000$$

$$8,000$$, $$7,200$$

$$6,000$$, $$8,000$$

Question 8

Inventory system of depreciation.

Machine hour rate.

Sum of years digit.

Depletion Method.

Solution

Question 9

Land.

Machinery.

Furniture.

None if the above.

Solution

Question 10

$$1,700$$

$$1,300$$

$$2,100$$

$$2,500$$

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