Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 60

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Question 1
1 / -0

An asset was purchased in $$2010$$ at $$Rs.10000$$. Calculate the opening balance amount after $$2$$years when depreciation is charged @$$10$$% p.a. under the straight line method.

A
Rs.8,000

B
Rs.8,100

C
Rs.9,000

D
Rs.10,000

Solution

Under the Straight-line method, depreciation is calculated at a percentage is given on a fixed amount basis.
In the given situation:
Cost of the asset Rs.10000
Depreciation @ 10% for first year Rs. 1000
--------------
Opening Balance in the second year Rs.9000
Depreciation @ 10% for second year Rs. 1000
--------------
Opening Balance in the 3rd year Rs.8000
----------------
Question 2
1 / -0

An item of fixed assets which has retired from active use and is held for disposal is ______________.

A
Not shown in the Financial Statement

B
Shown at Net Book Value

C
Shown at Net Realizable Value

D
Shown at lower of Net Book Value and Net Realizable Value

Solution

Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statements. Any expected loss is recognized immediately in the profit and loss statement. This is based on the concept of conservatism.
Question 3
1 / -0

Asset purchase in 2008 at $$Rs.10000$$. The depreciation amount for $$2$$ years @$$10$$% p.a under straight line method ____________.

A
$$Rs.1000$$

B
$$Rs.2000$$

C
$$Rs.1900$$

D
$$Rs.4000$$

Solution

Depreciation for 1st year = 10000 * 10 /100 = 1000
Deprecation for 2nd year= 10000 * 10 /100 = 1000 ( calculate on original cost always in all subsequent years)
total Depreciation = 2000
Question 4
1 / -0

Which of the following statement is correct?

A
A company need not provide for depreciation if it does not want to declare dividends.

B
Depreciation has to be provided for if dividends are to be declared

C
The fact that depreciation has not been provided for together with the quantum of arrears of depreciation must be stayed by way of notes.

D
All of the above
Solution
Section 123 of the Companies Act 2013 says that a company can declare dividend from:
Out of profits (after depreciation) or out of accumulated profits (after depreciation) or from both
Out of the money provided by the government if guarantee given by the government
Out of free reserves
Depreciation to be provided according to schedule II of the act
Considering the above clause of Section 123, all the given 3 statements are correct.
Question 5
1 / -0

__________ reduces the availability of the quantity of the material or asset.

A
Depletion

B
Amortisation

C
Depreciation

D
Appreciation

Solution

Depletion.
Depletion is an accounting and tax concept used most often in mining, timber, petroleum, or other similar industries. The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Depletion is similar to depreciation in that it is a cost recovery system for accounting and tax reporting.
Depletion for both accounting purposes and united states tax purposes, is a method of recording the gradual expense or use of natural resources over time. Depletion is using up of natural resources by mining, drilling, or felling.
Question 6
1 / -0

Charging a period for the proportionate cost of an Intangible asset is termed as:

A
Depreciation

B
Diminution

C
Amortisation

D
Expiration

Solution

Fixed Assets are classified as tangible assets and intangible assets. Tangible assets are those which can be touched, felt but intangible assets are those which can not be seen, touched or felt.

Intangible assets are having some fictitious assets like preliminary expenses, deferred revenue expenditure which can not be charged fully in the year of expense but a portion of which is charged to profit & loss account every year. The process of charging these expense to profit & loss account is called Amortisation.
Question 7
1 / -0

Obsolescence means decline in the value due to _________.

A
Fall in the market price

B
Physical wear and tear

C
Innovations and inventions

D
Efflux of time

Solution

When there is new innovation and inventions in the market, the existing product may lose its value. Such decline in the value of the product is known as obsolescence.
Obsolescence occurs generally due to the availability of the alternatives that perform better.
Question 8
1 / -0

On January 1, 1992, there was a balance of Rs. 4,000 in the plant and machinery account. An addition of Rs. 2,000 was made on July 1, 1992. Accounts were closed for the year on December 31, 1992. If depreciation was charged at 10% per annum, the balance in the plant and machinery account on the closing date would be:

A
Rs. 5,300

B
Rs. 5,400

C
Rs. 5,500

D
Rs. 5,600

Solution

Option C is correct.
Depreciation on 4000 of 10% = 400.
On 2000 depreciation will be calculated for 6 months.
2000*10%*6/12 = 100.
Total Depreciation = 500.
Balance in plant and machinery account on the closing date would be
4000+2000 - 500 = 5500.
Question 9
1 / -0

Depreciation, as the term is used in accounting, means ___________.

A
Physical deterioration of a fixed asset

B
Decline in the market value of an asset

C
Allocation of the cost of fixed asset over its useful life

D
A business expense for acquiring asset

Solution

Assets that are used in the business for the long term to earn future economic benefits are termed fixed assets. The cost of such fixed assets is allocated and charged to profit and loss account over the usefulness of the asset which is called depreciation. Such depreciation is a reduction in the value of assets over a period of time due to the wear and tear of the assets.
Question 10
1 / -0

The original cost of the asset is Rs. 2,50,000. The useful life of the asset is 10 years and net residual value is estimated to be Rs. 50,000. Now, the amount of depreciation to be charged every year will be _________.

A
Rs.21000

B
Rs.20000

C
Rs.25000

D
Rs.19000

Solution

Formula for calculating depreciation is :
Depreciation = (Cost of asset - Scrap value)/ Useful life of asset
Depreciation = Rs. (250000 - 50000)/ 10 years
Depreciation = Rs. 20000

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Depreciation Provisions and Reserves Test - 60

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Question 1

Rs.8,000

Rs.8,100

Rs.9,000

Rs.10,000

Solution

Question 2

Not shown in the Financial Statement

Shown at Net Book Value

Shown at Net Realizable Value

Shown at lower of Net Book Value and Net Realizable Value

Solution

Question 3

$$Rs.1000$$

$$Rs.2000$$

$$Rs.1900$$

$$Rs.4000$$

Solution

Question 4

A company need not provide for depreciation if it does not want to declare dividends.

Depreciation has to be provided for if dividends are to be declared

The fact that depreciation has not been provided for together with the quantum of arrears of depreciation must be stayed by way of notes.

All of the above

Solution

Question 5

Depletion

Amortisation

Depreciation

Appreciation

Solution

Question 6

Depreciation

Diminution

Amortisation

Expiration

Solution

Question 7

Fall in the market price

Physical wear and tear

Innovations and inventions

Efflux of time

Solution

Question 8

Rs. 5,300

Rs. 5,400

Rs. 5,500

Rs. 5,600

Solution

Question 9

Physical deterioration of a fixed asset

Decline in the market value of an asset

Allocation of the cost of fixed asset over its useful life

A business expense for acquiring asset

Solution

Question 10

Rs.21000

Rs.20000

Rs.25000

Rs.19000

Solution

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