Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 50

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Question 1
1 / -0

The portion of the acquisition cost of the asset, yet to be allocated is known as ___________________.

A
Written Down Value

B
Accumulated Value

C
Realizable Value

D
Salvage Value

Solution

The write down value (WDV), is the "net book value of an asset computed by deducting the accumulated depreciation or amortization from the value shown in the account books (the book value)."
Question 2
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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

Reducing balance depreciation is a method of calculating depreciation whereby an asset is expensed as a set percentage each accounting period. Asset cost: the original value of the asset plus any additional costs required to get the asset.
Question 3
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Under which of the following method of depreciation charged does not declines?

A
Fixed instalment method

B
Sum of year digit method

C
Double decline method

D
All of the above

Solution

Fixed installment method is one of the methods of allocating depreciation. In this method, every year a fixed amount of depreciation is deducted from the value of assets and the same amount is debited to profit and loss account. The book value of the assets is reduced to zero at the end of the expected life.
Question 4
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Under which of the following method depreciation charged declines?

A
Diminishing balance method

B
Sum of year digit method

C
Double decline method

D
All of the above

Solution

Diminishing Balance Method of Calculating Depreciation :- Under this method, the amount of depreciation is calculated as a fixed percentage of the reducing or diminishing value of the asset standing in the books at the beginning of the year, so as to bring down the book value of the asset to its residual value.

The sum of years' digits method is a form of accelerated depreciation that is based on the assumption that the productivity of the asset decreases with the passage of time. Under this method, a fraction is computed by dividing the remaining useful life of the asset on a particular date by the sum of the year's digits.

Double declining balance method is a form of an accelerated depreciation method in which the asset value is depreciated at twice the rate it is done in the straight-line method.
Question 5
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Which of the following is/are advantage of Reducing balance method/WDV method?

A
Under this method it is easy to calculate depreciation rate.

B
Income tax authorities do not accepts this method

C
The efficiency and usefulness is more in early years so depreciation amount is also more in early years and goes on diminishing year to year.

D
All of the above

Solution

The reducing balance method -- which depreciates assets more ... front-loads more depreciation into the first years of an asset's life. ... Under the reducing balance method, the asset is depreciated at a higher percentage rate than it straight line and 20 percent a year under double declining balance.
Question 6
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Which of the following is correct formula for charging depreciation under fixed instalment method?

A
Depreciation = $$\frac{Scrap Value - Original cost}{Life of the asset}$$

B
Depreciation = $$\frac{Life of the asset - Scrap Value}{Original cost}$$

C
Depreciation = $$\frac{Original Cost - Scrap Value}{Life of the asset}$$

D
Depreciation = $$\frac{Scrap Value - Life of the asset}{Original cost}$$

Solution

Fixed Installment Method or Equal Installment Method or Straight Line Method or Fixed Percentage or Original Cost Method: In this method a fixed or equal amount of depreciation written off as depreciation at the end of each year, during the life time of the asset.
Question 7
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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)

Solution

Credit balance is the normal balance of an accumulated depreciation account. Accumulated depreciation has a credit balance because it aggregates the amount of depreciation expense charged against a fixed asset.
Question 8
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Which of the following is/are advantage of fixed instalment method of charging depreciation?

A
This method is acceptable to income tax authorities.

B
The value of the asset can be completely written off, i.e the value can be reduced to zero.

C
The efficiency and usefulness is more in early years so depreciation amount is also more in early years and goes on diminishing year to year.

D
All of the above.

Solution

The annual depreciation charge in SLM remains fixed during the life of the asset. In straight line method, the book value of the asset is completely written off i.e. the asset value is reduced to zero or its salvage value. Conversely, the asset's book value is not completely written off in written down value method.
Question 9
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Which of the following statement is false?
(I) Depreciation expense shown on a company's income statement must be the same amount as the depreciation expense on the company's income tax return.
(II) The purpose of depreciation is to have the balance sheet report the current value of an asset.
(III) Depreciation expense reflects an allocation of an asset's original cost rather than an allocation based on the economic value that being consumed.
(IV) One company might depreciate a new computer over three years while another company might depreciate the same model computer over five years and both companies are right.
The correct option is _____________________.

A
(I) & (III)

B
(II) & (IV)

C
(I) & (II)

D
(I) , (II) & (III)
Question 10
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Which of the following is/are cannot be treated as advantage of fixed instalment method of charging depreciation?

A
It is a simple and easy method.

B
It takes into account the effective utilization of the asset.

C
This method can be applied where asset gets depreciated because of effluxion of time like furniture, equipments, patents, leasehold etc.

D
All of the above

Solution

Fixed installment method does not take into consideration the seasonal fluctuations in the use of fixed assets. In this method of Depreciation Equal amount of Depreciation is charged even though the capacity of the machine declines every year.

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 50

Result

Depreciation Provisions and Reserves Test - 50

Score

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Rank

-

SHARING IS CARING

Question 1

Written Down Value

Accumulated Value

Realizable Value

Salvage Value

Solution

Question 2

Fixed instalment method.

Annuity method

Reducing balance method

All of the above

Solution

Question 3

Fixed instalment method

Sum of year digit method

Double decline method

All of the above

Solution

Question 4

Diminishing balance method

Sum of year digit method

Double decline method

All of the above

Solution

Question 5

Under this method it is easy to calculate depreciation rate.

Income tax authorities do not accepts this method

The efficiency and usefulness is more in early years so depreciation amount is also more in early years and goes on diminishing year to year.

All of the above

Solution

Question 6

Depreciation = $$\frac{Scrap Value - Original cost}{Life of the asset}$$

Depreciation = $$\frac{Life of the asset - Scrap Value}{Original cost}$$

Depreciation = $$\frac{Original Cost - Scrap Value}{Life of the asset}$$

Depreciation = $$\frac{Scrap Value - Life of the asset}{Original cost}$$

Solution

Question 7

Debit balance

Credit balance

Nil balance

(A) or (B)

Solution

Question 8

This method is acceptable to income tax authorities.

The value of the asset can be completely written off, i.e the value can be reduced to zero.

The efficiency and usefulness is more in early years so depreciation amount is also more in early years and goes on diminishing year to year.

All of the above.

Solution

Question 9

(I) & (III)

(II) & (IV)

(I) & (II)

(I) , (II) & (III)

Question 10

It is a simple and easy method.

It takes into account the effective utilization of the asset.

This method can be applied where asset gets depreciated because of effluxion of time like furniture, equipments, patents, leasehold etc.

All of the above

Solution

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