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Depreciation Provisions and Reserves Test - 56

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Depreciation Provisions and Reserves Test - 56
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  • Question 1
    1 / -0
    The balance of Glass & Cutlery A/c on 01.01.2014 is Rs. 28,000. Glass & Cutlery purchased during the year were Rs. 16,000. Depreciation is to be charged on the above as follows-
    -1/5th of its value is to be written off in the year of purchase, and 
    -2/5th in each of the next 2 years. 
    Of the stock of Glass & Cutlery as on 01.01.2014, 1/2 was one year old and 1/2 was 2 years old.
    Purchase are made on 1st January.
    Closing Balance of Glass & Cutley A/c is _____.
    Solution

  • Question 2
    1 / -0
    X Ltd. purchased a machine for Rs. 1,20,000 and incurred Rs. 40,000 towards freight, insurance, carriage inwards and installation charges. It was estimated that its life is 4 years during which a sum of Rs. 60,000 is likely to be spent on its repairs maintenance beginning from the 2nd year. At the end of its useful life, the scrap value will be Rs. 20,000. Actual repairs were as under:
    Year I - Rs. Nil, Year - II Rs. 10,000, Year - III Rs. 20,000, Year - IV Rs. 30,000
    At the end of useful life, the realised scrap value of the machine was Rs. 16,000 only. 
    The closing balance of Provision for Depreciation and Repairs Account at the Year II will be:
    Solution

  • Question 3
    1 / -0
    CAS Ltd. imported a machine on 01.07.2013 for Rs. 1,28,000, paid customs duty and freight Rs. 64,000 and incurred erection charges Rs. 48,000. Another local machinery costing Rs. 80,000 was purchased on 01.01.2014. On 1st July 2015, a portion of the imported machinery (value one-third) got out of order and was sold for Rs. 27,840. Another machinery was purchased to replace the same for Rs. 40,000. Depreciation is to be calculated at 20%p.a.
     The loss on sale of machine and  Closing Balance of Machinery Account on 31.12.2015 will be
  • Question 4
    1 / -0
    On 1 April 2012, X Ltd. purchased a machinery for Rs. 12,00,000. On 1 Oct. 2014, a part of the machinery purchased on 1 April 2012 for Rs. 80,000 was sold for Rs. 45,000 and a new machinery at a cost of Rs. 80,000 was purchased and installed on the same date. The company has adopted the method of providing 10% p.a. depreciation on the written down value basis. The closing balance of 'Provision for Depreciation Accounts' as at 31.03.2015 will be: 
    Solution
    Balance in 'Provision for depreciation Account" as on 31.03.2015:-
    = depreciation on unsold machinery + Depreciation on new machinery
    = RS- 3,03,520 + RS-4,00
    RS-3,07,520.

    Working notes:-
    1)  Depreciation on unsold machinery from 1.4.2012 to 31.03.2015:-
    = 1,12,000 + 1,00,800 + 90,720
    = RS-3,03,520.
    Depreciation for 12-13:-
    = (12,00,000 - 80,000) 11,20,000 x 10/100
    = RS-1,12,000
    Depreciation for 13-14:-
    = (11,20,000 - 1,12,000) 10,08,000 x 10/100
    = RS-1,00,800
    Depreciation for 14-15:-
    = (10,08,000 - 1,00,800) 9,07,200 x 10/100
    = RS-90,720.

    2) Depreciation on new machinery from 1.10.2014 to 31.03.2015 (6months)
    = 80,000 x 10/100 x 6/12
    = RS-4,000. 
  • Question 5
    1 / -0
    Date of Purchase of Machine 1.4.2012, cost: Rs. 12,00,000, Rate of Depreciation: 10% p.a. on Staright Line Basis. The closing balance of Provision for Depreciation Account as at 31.3.2015 will be: 
    Solution
    Closing balance of provision for depreciation account:-
    = total depreciation on the machinery 
    = Depreciation for the 3 years( 1st April 2012 to 31st march 2015)
    = 12,00,000 x 10/100 x 3 years 
    = RS-3,60,000.

  • Question 6
    1 / -0
    In which of the following methods, is the cost of the asset written off in equal proportion during its economic life?
    Solution
    This is the easiest and one of the widely used methods of providing depreciation. This method is based on the assumption of equal usage of the asset over its entire useful life. 
    It is called straight line for a reason that if the amount of depreciation and the corresponding time period is plotted on a graph, it will result in a straight line.
  • Question 7
    1 / -0
    A new machine costing Rs. 2 lakh was purchased by a company to manufacture a special product. Its useful life is estimated to be 5 years and scrap value at Rs. 20,000. The production plan for the next 5 years are as follows:
    Year I     5,000   units,
    Year II    10,000  units,
    Year III    12,000 units,
    Year IV   20,000 units,
    Year V    25,000 units.
    The depreciation for the 4 years under the units-of-production method will be_______.
    Solution
    Depreciation = Depreciable value x production units 
                            ---------------------------------------------------------
                                    Total production units 
                          = 1,80,000 x 20,000
                           ---------------------------
                                72,000 (WN)
                          = RS-50,000.

    Working note:- 
    Total production hours 
    = 5,000 + 10,000 + 12,000 + 20,000 + 25,000
    = 72,000 units
  • Question 8
    1 / -0
    Date of Purchase of Machine 1.4.2012, Cost: Rs. 12,00,000, Rate of Depreciation: 10% p.a. Straight Line Basis. On 1.10.2014, a new machinery was purchased for Rs. 80,000. The closing balance of Provision for Depreciation Account as at 31.3.2015 will be:
    Solution
    Balance in provision for depreciation account
    = accumulated depreciation on Machinery from 1.4.2014 to 31.03.2015
    (3 years) + depreciation on new machinery
    = 3,60,000 (WN-1) + 4,000 (WN-2)
    = Rs. 3,64,000.

    Working notes:-
    1. Accumulated depreciation on old machinery from 1.4.2014 to 31.03.2015
    (SLM basis)
    = 12,00,000 x 10/100 x 3 years 
    = Rs. 3,60,000.

    2. Depreciation on new machinery :-
    = Rs. 80,000 x 10/100 x 6/12 (October to march) 
    = Rs. 4,000. 

  • Question 9
    1 / -0
    On 1 st January 2011, Tushar Ltd. purchased a machine for Rs. 20,000 and written back depreciation @ 10% p.a. At the end of 2014, the company decided to change the method of Straight Line Method retrospectively, the rate of depreciation remaining the same.
    On account of changed method of depreciation-
  • Question 10
    1 / -0
    In which of the following methods, the cost of the asset is not spread over in equal proportion during its useful economic life?
    Solution
    The cost of the asset is spread over in equal proportion during the useful economic life is the straight-line method as the amount of depreciation is the same in this method.
    The cost of the asset is not spread over the useful life in the case of the sum of years digits methods, written down value method and units of production method as the amount of depreciation keeps on decreasing under this method.
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