Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 55

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Question 1
1 / -0

The objectives of providing depreciation include:

A
To ascertain in true financial performannce

B
To Ascertain true financial position

C
To ascertain true cost of production

D
To comply with legal requirements

E
To accumulate funds for replacement of assets

Solution

The objectives of providing depreciation include:-
1) To ascertain in true financial performance.
2) To ascertain true financial position.
3) To ascertain true cost of production,
4) To comply with legal requirements.
5) To accumulate funds for replacement of assets.
Question 2
1 / -0

X Ltd. Purchased a machine on 1st Jan for Rs. 2,40,000. Installation expenses were Rs. 20,000. Residual value after 5 years Rs. 10,000. On 1st July, expenses for repairs were incurred to the extent of Rs. 4,000. Depreciation rate = 10% Depreciation for 4th year will be:

A
Rs. 26,000

B
Rs. 34,000

C
Rs. 42,000

D
Rs. 50,000

Solution

Here , cost +installation charges =240000+20000=260000
In SLM method , depreciation for every year is same.
so, 260000*10%=26000
so for 4th year , it will be 26000
Question 3
1 / -0

Consider the following information:
I. Rate of depreciation under the written down method= 20%
II. Original cost of the asset = Rs. 2,00,000
III. Residual value of the asset at the end of useful life= Rs. 81,920
Depreciation for 3rd year =

A
Rs. 40,000

B
Rs. 32,000

C
Rs. 25,600

D
Rs. 20,480

Solution

Calculation of Depreciation is as follows:
For 1st Year
2,00,000@20% = Rs 40,000
For 2nd Year
1,60,000 (2,00,000-40,000)@20% = Rs 32,000
For 3rd Year
1,28,000 (1,60,000-32,000)@20% = Rs 25,600
Question 4
1 / -0

The balance in the accumulated provision for depreciation account of a company as at the beginning of the year was Rs. 2,00,000 when the original cost of the assets amounted to Rs. 10,00,000. The company charges 10% depreciation on a straight line basis for all the assets including those which have been either purchased or sold during the year. One such asset costing Rs. 5,00,000 with accumulated depreciation as at the beginning of the year of Rs. 80,00,000 was deposited off during the year.
Depreciation for the year is __________.

A
Rs. 40,000

B
Rs. 50,000

C
Rs. 60,000

D
Rs. 1,00,000

Solution

Depreciation for the year = Asset at beginning of the year x depreciation rate
= 10,00,000 x 10/100
= RS-1,00,000.
Question 5
1 / -0

Purchase Price of Machine Rs. 1,50,000, Installation Charges Rs. 50,000, Residual Value Rs. 81,920, Useful life 4 years, the amount of depreciation under WDV Method for the third year will be:

A
Rs. 40,000

B
Rs. 32,000

C
Rs. 25,600

D
Rs. 20,480

Solution

Here , formula for WDV is - deprecciation rate = 100 * (1-n√s/c)

where n = number of years , s = salvage value , c = cost of asset

=[1-4√40960/100000] * 100

= [1-4√0.4096] * 100

= [1-.80]*100

=.20*100

=20
1st year WDV = 200000*20% = 40000 = 200000-40000 = 160000
2nd Year WDV = 160000*20% = 160000-32000 = 128000
3rd Year WDV = 128000*20% = 25600
Question 6
1 / -0

Which method is followed to have a uniform charge for depreciation and repair and maintenance together ?

A
Written Down Value Method

B
Straight Line Method

C
Double Declining Method

D
Sum of Years Digits Method

Solution

The written down value method is charged on the book value of the asset. Since book value keeps on reducing by the annual charge of depreciation, it is also known as the reducing balance method. In this method, we charge on the value which is actually incurred in that accounting year.
Question 7
1 / -0

Providing depreciation ensures sufficient cash for asset replacement under-

A
Boom conditions

B
Inflationary condition

C
Non inflationary condition

D
None of the above

Solution

Depreciation should be provided irrespective of the increase in value of asset due to inflation. It is not appropriate to omit charging depreciation of a fixed asset on the grounds that its market value is greater than its net book value. If account is taken of such increased value by writing up the net book value of a fixed asset, then, an increased charge for depreciation will become necessary.
Question 8
1 / -0

Date of purchase 1st July, Purchase Price of Machine Rs. 80,000, Installation Charges Rs. 20,000, Residual Value Rs. 40,960, Usefullife 4 years, Accounting year - financial year. Date when Machine was put to use- 1st Oct. Depreciation under WDV method for the first year will be:

A
Rs. 20,000

B
Rs. 15,000

C
Rs. 10,000

D
None of these

Solution

Here , formula for WDV is - deprecciation rate = 100 * (1-n√s/c)

where n = number of years , s = salvage value , c = cost of asset

=[1-4√40960/100000] * 100

= [1-4√0.4096] * 100

= [1-.80]*100

=.20*100

=20

1st year WDV = 100000*20%=20000

but it is purchased on july , so 20000*6/12=10000
Question 9
1 / -0

Date of Purchase 1st July, Purchase Price of Machine Rs. 80,000, Installation Charges Rs. 20,000. Residual Value Rs. 40,960. Useful life 4 years, Accounting year - Financial year.
The depreciation under SLM for the first year will be:

A
Rs. 22,500

B
Rs. 14,760

C
Rs. 11,070

D
None of these

Solution

Purchase Price of Machine Rs. 80,000

Installation Charges Rs. 20,000.

Cost = Purchase Price of Machine + Installation Charges

         = 80,000+20,000 = 100000

Residual Value Rs. 40,960

Useful life 4 years

Calculation of depreciation at the end of 1st year

Depreciation = Cost – Residual Value/ Estimated Useful life

                     =1,00,000-40,960/4

= 14760

Rate of Depreciation = Annual Depreciation/Cost of machinery X 100

                        =14760/1,00,000 X 100

                        = 14.76%

Book Value as on 31^st March 1,00,000

Depreciation @14.76%

(1,00,000 X 14.76% X 9/12) = 11070.
Question 10
1 / -0

Date of Purchase - 1st July, Purchase Price of Machine Rs. 80,000, Installation Charges Rs. 20,000, Residual Value Rs. 40,960, Useful life 4 years, Accounting year -Financial year. Date when Machine was put to use- 1st Oct.
The depreciation under SLM for the first year will be:-

A
Rs. 12,500

B
Rs. 11, 070

C
Rs. 7,380

D
None of these

Solution

Depreciation(SLM basis) = Depreciable value - Residual value
-----------------------------------------------------
Useful life.
= 1,00,000 - 40,960
----------------------------
4
= 14,760 x 6/12 ( October 1st to 31st march)
= RS-7,380.

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Depreciation Provisions and Reserves Test - 55

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Depreciation Provisions and Reserves Test - 55

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Question 1

To ascertain in true financial performannce

To Ascertain true financial position

To ascertain true cost of production

To comply with legal requirements

To accumulate funds for replacement of assets

Solution

Question 2

Rs. 26,000

Rs. 34,000

Rs. 42,000

Rs. 50,000

Solution

Question 3

Rs. 40,000

Rs. 32,000

Rs. 25,600

Rs. 20,480

Solution

Question 4

Rs. 40,000

Rs. 50,000

Rs. 60,000

Rs. 1,00,000

Solution

Question 5

Rs. 40,000

Rs. 32,000

Rs. 25,600

Rs. 20,480

Solution

Question 6

Written Down Value Method

Straight Line Method

Double Declining Method

Sum of Years Digits Method

Solution

Question 7

Boom conditions

Inflationary condition

Non inflationary condition

None of the above

Solution

Question 8

Rs. 20,000

Rs. 15,000

Rs. 10,000

None of these

Solution

Question 9

Rs. 22,500

Rs. 14,760

Rs. 11,070

None of these

Solution

Question 10

Rs. 12,500

Rs. 11, 070

Rs. 7,380

None of these

Solution

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