Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 54

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Question 1
1 / -0

Depreciation is shown in _____________.

A
Receipts and Payments Account

B
Income and Expenditure Account

C
Both (A) and (B)

D
Either (A) or (B)

Solution

In case of non-for-profit organizations depreciation being a non-cash expense is shown in the income and expenditure account. An income and expenditure account is just like a profit and loss account. Hence, depreciation being an expense is charged to the income and expenditure account.
Question 2
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Depreciation amount is the __________________.

A
Difference between historical cost and the market value of an asset

B
Historical cost less estimated salvage value

C
Historical cost less depreciation till date

D
None of these

Solution

Fixed assets are shown in the Balance sheet at Historical cost less depreciation. Depreciation Amount is the historical cost less salvage value of the asset. Depreciation is apportioning the cost of the asset by writing it off over the life of the asset. It is also used to record the decline in the value of the asset due to the passage of time, wear and tear etc.
Question 3
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Useful life of a depreciation asset should be estimated after considering:

A
Expected Physical wear & tear

B
Obsolescence

C
Legal or other limits on the use of the asset

D
Historical cost

E
(A), (B), & (C)

Solution

Useful life of asset is decided on the basis of its use and expected physical wear & tear, legal or other limits on the use of the asset.
Useful life means for how many years owner can use machine in good condition and with good output.
Question 4
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Which of the following statement is true?

A
Depreciation provision is of the discretion of the management

B
Depreciation is a charge against profit

C
Depreciation is provided only when there is profit

D
Depreciation is an appropriation of profit

Solution

Depreciation is a charge against profit as it is charged regardless of whether there is profit or loss.
They are either debited to profit or loss account or to the respective provision account.
Question 5
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The factors effecting the amount of depreciation are:

A
Historical Cost, Expected Useful Life & Estimated Residual Value

B
Historical Cost, Expected useful life & Actual Residual Value

C
Historical Cost, Actual Useful Life & Estimated Residual Value

D
Historical Cost, Actual Useful Life & Actual Residual Value

Solution

The factors that affect the amount of depreciation are:
1. Historical cost - it is also known as purchase cost, original cost or acquisition cost.
2. Useful life - Useful life is either the period over which a depreciable asset is expected to be used by the enterprise; or the number of production of similar units expected or hours worked to be obtained from the use of the asset by the enterprise. Determination of the useful life is a matter of estimation and is normally based on various factors including experience with similar types of assets.
3. Estimated Residual Value - The estimated residual value of a depreciable asset implies the value expected to be realized on its sale or exchange on the expiry of its useful life.
Question 6
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Consider the following data pertaining to M/s. E Ltd. who constructed a cinema house:
Particular Rs.
Cost of second hand furniture 90,000
Cost of the repainting the furniture 10,000
Wages Paid to employees for fixing the furniture 2,000
Fire insurance premium 1,000
The amount debited to Furniture Account is ____________.

A
Rs. 90,000

B
Rs. 91,000

C
Rs. 1,00,000

D
Rs. 1,02,000

Solution

Amount to be debited to furniture Account
Cost of second hand furniture + Cost of repaint + Wages
90000 + 10000 + 2000 = Rs 102000.

Fire insurance premium is not included in Furniture account.

Insurance premiums paid to the insurance companies cannot be capitalized, but expensed in profit or loss in line with an insurance policy terms.
The reason is that these costs are not inevitable to bring the assets to the condition and location to operate as desired by the management.
Question 7
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Depreciable assets which:

A
Are expected to be used during more than one accounting period

B
Have a limited useful life

C
Are held by an enterprise for use in the production or supply of goods and services, for rental to others, or administrative purposes and not for the purpose of sale in the ordinary course of business.

D
All of above

Solution

Depreciation means decline in book value of asset. The assets generally have useful life for more than one accounting period.Assets have limited useful life.Assets are used to earn income by way of rent, for production of goods or services or for office use.
If product is used for purpose of resale then it can not be called as asset as it is for trade.
Question 8
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When depreciation is recorded by charging to Provision for Depreciation Account, the asset appears -

A
At original cost

B
At original cost / less depreciation

C
At market value

D
At realizable value

Solution

When depreciation is recorded to provision for depreciation account, depreciation is accumulated as provision on the liability side of balance sheet and when it is actually charged on asset at that time depreciation is subtracted from asset cost.
Question 9
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The main causes of depreciation include:

A
Physical wear & tear

B
Passage of time

C
Changes Economic Development

D
Expiration of Legal Rights

E
All of the above

Solution

The main causes of depreciation include the following

1. Physical wear and Tear: Physical wear and Tear when the fixed assets are put to use, the value of such assets may decrease such decrease in the value of the asset is said to be due to physical wear and tear

2. With the passage of time: When the assets are exposed to the forces of nature like weather, winds, rains, etc the value of such an asset may decrease even if they are not put to any use.

3. Changes in the economic environment: The value of an asset may decrease due to a decrease in demand for the asset. The demand for the asset may decrease due to technological changes, changes in habit of the customer etc.
4. Expiration of legal rights: When the use of an asset is governed by the time-bound arrangement, the value of such asset may decrease with the passage of time.
Question 10
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Useful life of fixed asset is _________.

A
The period over which a depreciable asset expected to be used by the enterprises, or

B
The number of production or similar units expected to be obtained from the use of the asset by the enterprise

C
(A) or (B)

D
None of the above

Solution

Useful life of an asset is the estimated economic or commercial life of the asset. Physical life is not important for this purpose because an asset may still exist physically but may not be capable of commercially viable production.

In the allocation of depreciable amount is the ‘expected useful life’ of an asset. It has been described as “either (i) the period over which a depreciable asset is expected to the used by the enterprise, or (ii) the number of production of similar units expected to be obtained from the use of the asset by the enterprise.”

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 54

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Depreciation Provisions and Reserves Test - 54

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Rank

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SHARING IS CARING

Question 1

Receipts and Payments Account

Income and Expenditure Account

Both (A) and (B)

Either (A) or (B)

Solution

Question 2

Difference between historical cost and the market value of an asset

Historical cost less estimated salvage value

Historical cost less depreciation till date

None of these

Solution

Question 3

Expected Physical wear & tear

Obsolescence

Legal or other limits on the use of the asset

Historical cost

(A), (B), & (C)

Solution

Question 4

Depreciation provision is of the discretion of the management

Depreciation is a charge against profit

Depreciation is provided only when there is profit

Depreciation is an appropriation of profit

Solution

Question 5

Historical Cost, Expected Useful Life & Estimated Residual Value

Historical Cost, Expected useful life & Actual Residual Value

Historical Cost, Actual Useful Life & Estimated Residual Value

Historical Cost, Actual Useful Life & Actual Residual Value

Solution

Question 6

Rs. 90,000

Rs. 91,000

Rs. 1,00,000

Rs. 1,02,000

Solution

Question 7

Are expected to be used during more than one accounting period

Have a limited useful life

Are held by an enterprise for use in the production or supply of goods and services, for rental to others, or administrative purposes and not for the purpose of sale in the ordinary course of business.

All of above

Solution

Question 8

At original cost

At original cost / less depreciation

At market value

At realizable value

Solution

Question 9

Physical wear & tear

Passage of time

Changes Economic Development

Expiration of Legal Rights

All of the above

Solution

Question 10

The period over which a depreciable asset expected to be used by the enterprises, or

The number of production or similar units expected to be obtained from the use of the asset by the enterprise

(A) or (B)

None of the above

Solution

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