Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 47

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Question 1
1 / -0

On a worksheet, the adjusting entry to account for depreciation of equipment consists of __________.

A
Debit to Depreciation Expense and a credit to Equipment

B
Debit to Depreciation Expense and a credit to Accumulated Depreciation

C
Debit to Equipment and a credit to Accumulated Depreciation

D
Debit to Accumulated Depreciation and a credit to Equipment

Solution

The basic journal entry for depreciation is to debit the Depreciation Expense account (which appears in the income statement) and credit the Accumulated Depreciation account (which appears in the balance sheet as a contra account that reduces the amount of fixed assets).
Question 2
1 / -0

Under straight line method, depreciation is calculated on:

A
Written Down Value

B
Salvage Value

C
Original Cost

D
Market Value

Solution

Depreciation is calculated on Original Cost in case of straight line method.In straight line depreciation method, depreciation is charged uniformly over the life of an asset. We first subtract residual value of the asset from its cost to obtain the depreciable amount. The depreciable amount is then divided by useful life of the asset in number of accounting years to obtain depreciation expense per accounting year.
Question 3
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Madhur and Company purchases a machine for a certain sum. The company has a policy of charging 8% depreciation on written down value. The depreciated value of the machine after three years in the books of Madhur and Company is Rs. 3,89,344. What was the purchase value of machine.

A
Rs. 5,00,000

B
Rs. 4,60,000

C
Rs. 4,23,000

D
Rs. 5,52,000

Solution

W.D.V. at machine at the end of 3rd year = Rs. $$3,89,344$$
W.D.V. of machine at the beginning of 3rd year will be = 389344/100-8%= 389344/92%
= 423200
W.D.V. of machine at the beginning of 2nd year will be = 423200/92%= 4,60,000
W.D. V. of machine at the beginning of 1st year will be (or purchase value)= 4,60,00/92%= 5,00,000
Question 4
1 / -0

Dinesh Garments purchased a machine for Rs. 50,000 and spent Rs. 6,000 on its creation. On the date of purchase it was estimated that the effective life of the machine will be ten years and after ten years its scrap value will be Rs. 6,000. The amount of depreciation for each year on straight line basis is :

A
Rs. 5,000

B
Rs. 5,600

C
Rs. 6,000

D
None of the above.

Solution

Depreciation = (Cost - Residual value)/Useful life Depreciation $$ = 56000-6000/10 = 5000$$
Question 5
1 / -0

What impact does depreciation have on the cash account?

A
Depreciation only impacts the cash account if inflation has occurred.

B
Depreciation has no impact on the cash account

C
Depreciation results in an increase to cash.

D
Depreciation results in a decrease to cash.

Solution

The use of depreciation can reduce taxes that can ultimately help to increase net income. The result is a higher amount of cash on the cash flow statement because depreciation is added back into the operating cash flow. Ultimately, depreciation does not negatively affect the operating cash flow of the business
Question 6
1 / -0

An equipment was purchased on 1st January, 2012 for Rs. 25,000 & is to be depreciated at 30% based on WDV method. If the company closes its books of account on 31 st March every year. What would be the net book value of the equipment as at 31 st December 2013:

A
12,250

B
10,000

C
17,750

D
12,545

Solution

Value of Equipment as on $$1st Jan, 2012 = 25,000$$
Less: Depreciation for the year 2012(25,000 x 30%) $$= 7,500$$
$$= 17,500$$
Less: Depreciation for the year 2013(17,500 x 30%) $$= 5,250$$
Net Book Value of the Equipment $$ = 12,250$$
Question 7
1 / -0

A company purchased plant for 50,000. The useful life of the plant is 10 years and the residual value is 5,000. The management wants to depreciate it by straight line method. Rate of depreciation will be:

A
8%

B
9%

C
10%

D
None of the above

Solution

Depreciation = $$\frac{50,000-5,000}{10}= 4,500$$
Rate of depreciation= $$\frac{4,500}{50,000}X 100$$ = 9%
Question 8
1 / -0

Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?

A
Increased operating costs

B
Overhaul of equipment

C
Salvage value of equipment when project is complete

D
Depreciation expense

Solution

Depreciation expense :Intangible benefits in capital budgeting would include all of the following except increased entire initial investment will not be recovered.The cash payback period is computed by dividing the cost of the capital.
Question 9
1 / -0

The WDV of machine is Rs. 72,900, rate of depreciation @ 10%, period 3 years. Calculate the original cost of machinery.

A
72,900

B
80,000

C
1,20,000

D
1,00,000

Solution

Cost of machinery = $$\frac{72900}{( 1 -10)^{3}} *100 = 1,00,000$$
Question 10
1 / -0

The value of a fixed asset after deducting depreciation is known as its:

A
Book value

B
Market Value

C
Face Value

D
Realisable value

Solution

For assets, the book value is based on the original cost of the asset less any depreciation.

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 47

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Depreciation Provisions and Reserves Test - 47

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SHARING IS CARING

Question 1

Debit to Depreciation Expense and a credit to Equipment

Debit to Depreciation Expense and a credit to Accumulated Depreciation

Debit to Equipment and a credit to Accumulated Depreciation

Debit to Accumulated Depreciation and a credit to Equipment

Solution

Question 2

Written Down Value

Salvage Value

Original Cost

Market Value

Solution

Question 3

Rs. 5,00,000

Rs. 4,60,000

Rs. 4,23,000

Rs. 5,52,000

Solution

Question 4

Rs. 5,000

Rs. 5,600

Rs. 6,000

None of the above.

Solution

Question 5

Depreciation only impacts the cash account if inflation has occurred.

Depreciation has no impact on the cash account

Depreciation results in an increase to cash.

Depreciation results in a decrease to cash.

Solution

Question 6

12,250

10,000

17,750

12,545

Solution

Question 7

8%

9%

10%

None of the above

Solution

Question 8

Increased operating costs

Overhaul of equipment

Salvage value of equipment when project is complete

Depreciation expense

Solution

Question 9

72,900

80,000

1,20,000

1,00,000

Solution

Question 10

Book value

Market Value

Face Value

Realisable value

Solution

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