Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 49

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Weekly Quiz Competition

Question 1
1 / -0

__________ has defined depreciation as "a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined."

A
The Institute of Chartered Accountants of England

B
The Institute of Chartered Accountants of India

C
American Institute of Certified Public Accountants

D
The Institute of Chartered Accountants of Pakistan

Solution

Accounting Standard 6 issued by the Institute of the Chartered Accountants of India defines 'depreciation' as “a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes.
Question 2
1 / -0

Which of the following is/are the objectives of providing depreciation?

A
To ascertain the correct profit

B
To meet the legal requirements

C
To present true financial position

D
All of the above

Solution

Objectives or Need for Providing Depreciation:
(a) To ascertain true profits:
(b) To show the assets at their proper values:
(c) To create funds for replacement of assets:
(d) To keep the capital in tact
(e) Statutory Need ,Provision of depreciation is a statutory need.
Question 3
1 / -0

What is the accumulated depreciation?

A
Sum of all depreciation expenses of a fixed asset

B
Depreciation expenses

C
Cost of depletion of assets

D
Future value of fixed asset

Solution

Accumulated depreciation is the total amount of a plant asset's cost that has been allocated to depreciation expense (or to manufacturing overhead) since the asset was put into service.
Question 4
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A purchased an old computer costing $$Rs. 10,000$$ and incurred $$Rs. 1,000$$ on its repair and $$Rs. 500$$ on its packing. He sold the computer at $$20$$% margin on selling price. The sales value will be _________.

A
$$Rs. 12,500$$

B
$$Rs. 11,000$$

C
$$Rs. 14,375$$

D
$$Rs. 13,800$$

Solution

Total cost of Computer = 10,000 + 1,000 + 500 = 11,500.

Cost 80
+ Profit 20
______ ____
Sales 100

Hence, sales value = 11,500 X 100 / 80 = 14,375.
Question 5
1 / -0

Under which of the following method depreciation is not charged uniformity?

A
Fixed instalment method

B
Insurance policy method

C
Double decline method

D
All of the above

Solution

Double-Declining Balance, revenues and assets will be reduced more due to the higher depreciation expense. In later years, a lower depreciation expense can have a minimal impact on revenues and assets. However, revenues may be impacted by higher costs related to asset maintenance and repairs.
Question 6
1 / -0

Which of the following statements is/are false?
(I) The term 'depreciation', 'depletion' and 'amortization' convey the same meaning.
(II) Provision For Depreciation A/c debited when Provision For Depreciation A/c is created.
(III) The main purpose of charging the Profit & Loss A/c with the amount of depreciation is to spread the cost of an asset over its useful life for the purpose of income determination.
The correct option is -

A
Only (I) of the above

B
Only (II) of the above

C
Only (III) of the above

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

Solution

(I) Prorating cost of an “Intangible Asset” over the period during which benefits of this asset are estimated to last is called Amortization. The concept of amortization is also used with leases & debt repayment. Amortization is for Intangible assets Depletion is for natural resources such as timber and oil. Depreciation = related to tangible assets, e.g. property, plant, and equipment.
(II) Assets have debit balance on Trial Balance. Therefore, the provision for depreciation of a fixed asset is a credit balance. Provision for depreciation reduces the balance of a fixed asset. Therefore, it must be credited to reflect such reduction.
(III) The purpose of depreciation is to achieve the matching principle of accounting. That is, a company is attempting to match the historical cost of a productive asset (that has a useful life of more than a year) to the revenues earned from using the asset.
Question 7
1 / -0

Which of the following is/are the objectives of providing depreciation?

A
To make provision for receivables

B
To derive maximum tax benefit for excise duty by taking cenvat credit.

C
To present true financial position

D
All of the above

Solution

Objectives or Need for Providing Depreciation:
(a) To ascertain true profits:
(b) To show the assets at their proper values:
(c) To create funds for replacement of assets:
(d) To keep the capital in tact
(e) Statutory Need ,Provision of depreciation is a statutory need.
(f) To present true financial position.
Question 8
1 / -0

Which of the following is/are cause for providing depreciation?

A
Obsolescence

B
Depletion in case of wasting assets

C
Passage of time

D
All of the above
Solution
The causes of depreciation are:
- Wear and tear.
- Perishability.
- Usage rights.
- Natural resource usage.
- Inefficiency/obsolescence.
Question 9
1 / -0

Which of the following is/are not the objectives of providing depreciation?

A
To create secrete reserve

B
To derive maximum tax benefit

C
To ascertain the proper cost of the product

D
All of the above

Solution

Secret reserve helps in eliminating unhealthy competition by not showing true profit to the competitors.
The existence of secret reserve is known to the management only and not to the real owners or shareholders. *Secret reserve makes the information of financial statements false and inaccurate.
Question 10
1 / -0

Which of the following is/are cannot be treated a cause for providing depreciation?

A
Obsolescence

B
Depreciation is a appropriation of profit

C
Physical wear and tear resulting from use

D
All of the above

Solution

Depreciation means diminution in the value of an asset, specially fixed asset, due to we must provide for such diminution or loss in our accounts for two reasons: (Transfer of annual depreciation to profit and loss account) The result is that the asset cannot be replaced at the earliest. It is an appropriation of profits.

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 49

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Depreciation Provisions and Reserves Test - 49

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SHARING IS CARING

Question 1

The Institute of Chartered Accountants of England

The Institute of Chartered Accountants of India

American Institute of Certified Public Accountants

The Institute of Chartered Accountants of Pakistan

Solution

Question 2

To ascertain the correct profit

To meet the legal requirements

To present true financial position

All of the above

Solution

Objectives or Need for Providing Depreciation:

Question 3

Sum of all depreciation expenses of a fixed asset

Depreciation expenses

Cost of depletion of assets

Future value of fixed asset

Solution

Question 4

$$Rs. 12,500$$

$$Rs. 11,000$$

$$Rs. 14,375$$

$$Rs. 13,800$$

Solution

Question 5

Fixed instalment method

Insurance policy method

Double decline method

All of the above

Solution

Question 6

Only (I) of the above

Only (II) of the above

Only (III) of the above

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

Solution

Question 7

To make provision for receivables

To derive maximum tax benefit for excise duty by taking cenvat credit.

To present true financial position

All of the above

Solution

Objectives or Need for Providing Depreciation:

Question 8

Obsolescence

Depletion in case of wasting assets

Passage of time

All of the above

Solution

Question 9

To create secrete reserve

To derive maximum tax benefit

To ascertain the proper cost of the product

All of the above

Solution

Question 10

Obsolescence

Depreciation is a appropriation of profit

Physical wear and tear resulting from use

All of the above

Solution

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