Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 59

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Question 1
1 / -0

A machine is purchased for Rs 1,00,000. Installation charges of Rs. 10,000 were incurred. Depreciation @ 10% was provided on straight fine Bases. The machine was sold for Rs. 60,000 after 5 years. Calculate the profit or loss on sale of machine.

A
Rs. 5,000 loss

B
Rs. 5,000 Profit

C
Rs. 60,000 Profit

D
Rs. 40,000 Loss

Solution

Profit/loss on sale = Sale price - WDV of the machine
   = RS-60,000 - RS-55,000
   = RS-5,000.

Working note:-
WDV of the machine = cost - depreciation on machine for 5 years
   = 1,10,000 - (1,10,000 x 10/100 x 5 years)
   = 1,10,000 - 55,000
   = RS-55,000
Question 2
1 / -0

Depreciation means ___________________.

A
some fixed assets losing price with the passage of time

B
loss of value by the movable properties over the time of their use

C
loss in value of the equipment of a plant over time due to their use

D
gaining of value by a domestic currency in its foreign exchange market

Solution

This is 'wear and tear' in a fixed/immovable asset due to its use. For different assets, the rates of depreciation are announced by the countries, which may be similar or different among countries.
Question 3
1 / -0

Under the diminishing balance method, the amount of depreciation is calculated on __________________.

A
The written down value of the asset

B
The market value of asset

C
The original cost of the asset

D
The expected realisable value of the asset

Solution

under diminishing balance method, the amount of depreciation is calculated on the reduced value of the asset i.e. The written down value of the asset.
Question 4
1 / -0

'A' purchased a computer on 1.04.06 for Rs. 60,000. He purchased another computer on 1.10.07 for Rs. 40,000. He charges depreciation at 20% p.a. on the straight-line method. What will be the closing balance of the computer as on 31.3.09?

A
Rs. 40,000

B
Rs. 64,000

C
Rs. 52,000

D
Rs. 48,000

Solution

Depreciation on machinery as per SLM method:-
Old machinery ( 1.04.06 - 31.3.09)
= 60,000 x 20/100 x 3 years
= RS-36,000.

New machinery (1.10.07 - 31.03.09)
= 40,000 x 20/100 x 1 year and 6 months
= 8,000 + 4,000
= RS-12,000.
WDV of the balance as on 31.03.2009:-
= (60,000 + 40,000) - (36,000 + 12,000)
= RS-52,000
Question 5
1 / -0

When the plant and machinery are in very good condition, depreciation:

A
Will not be provided

B
Is to be provided as usual

C
May or may not be provided

D
None of the above

Solution

When the plant and machinery are in a very good condition, depreciation will be provided as usual. Depreciation is writing off the cost of the asset over the useful life of the asset. The reason can be passage of time, wear and tear etc. Even if the machinery is in good condition the depreciation has to be provided to apportion the cost over the life of the asset.
Question 6
1 / -0

The profit on depreciation policy is transferred to :

A
Profit and loss A/c

B
Asset A/c

C
Depreciation reserve A/c

D
None of the above

Solution

Depreciation reserve is a business fund in which the probable replacement cost of equipment is accumulated each year over the life of the asset. It can be replaced readily when it becomes obsolete and totally depreciated. It is the total depreciation charged against all productive assets as stated on the balance sheet.
Question 7
1 / -0

If the Market price of machinery is more than the book value then ________________.

A
Depreciation need not be provided

B
Depreciation will be provided

C
Depreciation will be provided but less

D
None of the above

Solution

Book value is a measure of all of a company's assets: stocks, bonds, inventory, manufacturing equipment, real estate, etc. In theory, book value should include everything down to the pencils and staples used by employees, but for simplicity's sake companies generally only include large assets that are easily quantified.
Question 8
1 / -0

The normal balance in the accumulated depreciation A/c is equal to the __________ .

A
cost of the asset

B
depreciation to be provided each year

C
total depreciation provided upto date

D
depreciated value of the asset

Solution

Accumulated depreciation is the total depreciation for a fixed asset that has charged. Depreciation account is an asset account with a credit balance (also .the depreciation calculation for a fixed asset from its acquisition date to its use.
Question 9
1 / -0

Which of the following is correct?

A
Depreciation is not the process of valuation of assets- it is the process of allocation of costs to the period of its economic life

B
If cost of machinery is more than book value there is no need of providing depreciation

C
If plant and machinery are in good condition, through repairs etc., there is no need to provide depreciation

D
All the above

Solution

The purpose of recording depreciation as an expense is to spread the initial price of the asset over its useful life. For intangible assets - such as brands and intellectual property - this process of allocating costs over time is called amortization.
Question 10
1 / -0

Which method of depreciation is suggested for coal mines?

A
Diminishing balance

B
Fixed instalment method

C
Sum of year's digits method

D
Depletion method

Solution

Depletion is the systematic allocation of the costs related to natural resources like minerals, precious metals, wood, etc. Such natural resources are known as wasting assets. Depreciation of such wasting assets is known as depletion. As coal mines are also wasting assets, the depletion method is used for their depreciation.

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 59

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Depreciation Provisions and Reserves Test - 59

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SHARING IS CARING

Question 1

Rs. 5,000 loss

Rs. 5,000 Profit

Rs. 60,000 Profit

Rs. 40,000 Loss

Solution

Question 2

some fixed assets losing price with the passage of time

loss of value by the movable properties over the time of their use

loss in value of the equipment of a plant over time due to their use

gaining of value by a domestic currency in its foreign exchange market

Solution

Question 3

The written down value of the asset

The market value of asset

The original cost of the asset

The expected realisable value of the asset

Solution

Question 4

Rs. 40,000

Rs. 64,000

Rs. 52,000

Rs. 48,000

Solution

Question 5

Will not be provided

Is to be provided as usual

May or may not be provided

None of the above

Solution

Question 6

Profit and loss A/c

Asset A/c

Depreciation reserve A/c

None of the above

Solution

Question 7

Depreciation need not be provided

Depreciation will be provided

Depreciation will be provided but less

None of the above

Solution

Question 8

cost of the asset

depreciation to be provided each year

total depreciation provided upto date

depreciated value of the asset

Solution

Question 9

Depreciation is not the process of valuation of assets- it is the process of allocation of costs to the period of its economic life

If cost of machinery is more than book value there is no need of providing depreciation

If plant and machinery are in good condition, through repairs etc., there is no need to provide depreciation

All the above

Solution

Question 10

Diminishing balance

Fixed instalment method

Sum of year's digits method

Depletion method

Solution

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