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Depreciation Provisions and Reserves Test - 57

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Depreciation Provisions and Reserves Test - 57
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  • Question 1
    1 / -0
    Date of Purchase of Machine 1.4.2012, cost: Rs. 12,00,000, Rate of Depreciation: 10% p.a Written down Value Basis. On 1.10.2014, a part of machinery purchased on 1.4.2012. for Rs. 80,000 was sold for Rs. 45,000. The closing balance of Provision for Depreciation Accounts as at 31.3.2015 will be: 
    Solution
    Balance in provision for depreciation account:-
    = Depreciation on Existing machinery (12,00,000 - 80,000)
    = 1,12,000 + 1,00,800 + 90720.
    = RS-3,03,520.

    Working notes:-
    1) Accumulated depreciation on old machinery from 1.4.2014 to 31.03.2015
    (WDV basis)
    Depreciation for 1st year:-
    = 11,20,000 x 10/100 
    = RS-1,12,000.
    Depreciation for 2nd year:-
    = (11,20,000 - 1,12,000) 10,08,000 x 10/100
    = RS-1,00,800.
    Depreciation for the 3rd year :-
    =(10,08,000 - 1,00,800) 9,07,200 X 10/100
    = RS-90,720.
  • Question 2
    1 / -0
    According to the Income Tax Act, which method of charging depreciation is provided?
    Solution

    Section 32(1) of the Act provides that depreciation is to be computed at the prescribed percentage on the written down value of the asset which in turn is calculated with reference to the actual cost of the assets. In the context of computing depreciation, it is important to understand the meaning of the term ‘WDV’ & ‘Actual Cost’.

  • Question 3
    1 / -0
    Which Reserve has debit balance?
    Solution
    Reserve for discount on creditors is created on a certain percentage of the creditors for which the firm is certain that it is no longer to be paid. The business may also receive discount for timely payments. It is a kind of saving and is credited to the profit and loss account. It has a debit balance which is deducted from the creditors balance in balance sheet. 
  • Question 4
    1 / -0
    Provision for Discount on Debtors is_______________.
    Solution
    Provision for discount on debtors is debited to profit and loss account. Provision for Discount is allowed when our debtors settle our accounts promptly. The amount of discount is an expected loss and has to be recorded in advance. 
  • Question 5
    1 / -0
    The W.D.V of an asset after three years of depreciation on the reducing balance method @ 10% pa. is its.36,450. What was its original value?
    Solution
    Value of asset at the end of 2nd year = value at the end of 3rd year x 100/90
                                                                    = 36,450 x 100/90 
                                                                    = RS-40,500.
    Value of asset at the end of 1st year = value at the end of 2nd year x 100/90
                                                                 = 40,500 x 100/90
                                                                 = RS-45,000.
    Original value =  Value at the end of 1st year x 100/90
                            = 45,000 x 100/90
                            = RS-50,000.
  • Question 6
    1 / -0
    On $$1^{st}$$ January, 2006 A Ltd purchased a machine for Rs 50,000 and spent Rs 4,000 on its carriage and Rs. 2000 on its installation. Its useful life is 10 years and scrap is Rs. 6000. Depreciation for the year under fixed installment method will be:
    Solution
    Depreciation(SLM Method) = Cost - scrap value 
                                                    ---------------------------
                                                          Useful life
                                                 = 56,000 - 6,000
                                                    -----------------------
                                                             10
                                                 = RS. 5,000.

  • Question 7
    1 / -0
    The main objective of providing depreciation is to ______________.
    Solution
    The main objective of providing depreciation is to Create funds for replacement of fixed assets. The main objective of charging depreciation is to accumulate adequate fund to replace old asset with the new one after the useful life.
  • Question 8
    1 / -0
    Provision is________________________.
    Solution
    Provision is a known liability but its amount and due date are indeterminate. It is basically setting an estimated amount aside for a known liability.  
  • Question 9
    1 / -0
    Amortization refers to writing off:
    Solution

    The practice of reducing the value of assets to reflect their reduced worth over time. The term means the same as depreciation, though in practice amortisation tends to be used for the write-off of intangible assets, such as goodwill, while either term is used for the write-off of fixed capital.

  • Question 10
    1 / -0
    Depreciation is to be calculated from the date of _____________________.
    Solution
    As per companies Act, Depreciation is to be calculated from the date When the asset is put to use. 
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