Depreciation Provisions and Reserves Test

Result

Depreciation Provisions and Reserves Test - 61

Score
-
out of -
Rank
-
out of -

TIME Taken - -

SHARING IS CARING

If our Website helped you a little, then kindly spread our voice using Social Networks. Spread our word to your readers, friends, teachers, students & all those close ones who deserve to know what you know now.

Weekly Quiz Competition

Question 1
1 / -0

Asset purchase on 1st April 2012 at Rs.100000. Calculate the amount of asset on 1st April 2017, depreciation @ 20% p.a. under the straight-line method.

A
Rs. 0

B
Rs. 20000

C
Rs. 40000

D
Rs. 50000

Solution

Purchase Price of Asset = 100,000
Depreciation = 20%
Depreciation amount = 100,000x20% = 20,000
Total Depreciation for 5 years (i.e., 1st April 2012 to 1st April 2017) = 20,000 x 5 years
= 100,000
Therefore, the Value of asset as on 1st April 2017 = Purchase Price (1st April 2012) - Depreciation for 5 years.
= 100,000 - 100, 000
= 0
Question 2
1 / -0

A provision is a ___________.

A
General reserve

B
Specific reserve

C
Capital reserve

D
None of these

Solution

Specific reserve.
A Provision is the amount written off or retained by way of providing depreciation, renewals or diminution in the value of assets or retained by way of providing for any liability of which the amount cannot be determined with substantial accuracy. In other words, Provision is an amount set aside out of income or profits. It is the retention of profit, made temporarily, for a specific purpose. Therefore, provision may be considered as a specific reserve.
Question 3
1 / -0

Asset purchased on 1st September 2020 for $$Rs.15000$$. Calculate depreciation as on 31 March 2021 on the asset, rate of depreciation is 12% ____________.

A
Rs.1050

B
Rs.1075

C
Rs.1875

D
Rs.13125

Solution

Cost of Assets Rs.15000
Rate of depreciation @12%
Depreciation for the year 12% on Rs.15000 i.e. Rs.1800
Asset purchase on 1st September, hence depreciation has to be charged for 7 months.

Depreciation for 7 month will be = Rs.1200 *7
12
= Rs.1050.
Question 4
1 / -0

The original cost of the asset is Rs. 6,00,000 and depreciation is charged @ 10% p.a. at written down value, then the amount of depreciation in 3rd year will be :

A
Rs.54000

B
Rs.48600

C
Rs.60000

D
Rs.49000

Solution

Under written down value of method of charging depreciation, depeciation is calculated on WDV as follows:
Original cost Rs. 600000
Less : Depreciation @ 10% p.a. (60000)
Written Down Value 540000
Less : Depreciation @ 10% p.a. (54000)
Written Down Value 486000
Less : Depreciation @ 10% p.a. (48600)
Written Down Value 497400
Depreciation in third year under WDV method is Rs. 48600
Question 5
1 / -0

Under Written Down Value Method depreciation is charged on ________ of the asset.

A
Historical cost

B
Written down value

C
Original cost

D
None of the above

Solution

Under the written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of fixed depreciable asset is written off during each accounting period over the expected useful life of asset. Under this method, the rate of deprecition remains constant year after year whereas the amount of depreciation goes on decreasing.
Question 6
1 / -0

Secret reserves may result by ___________.

A
creating general reserve

B
providing excessive depreciation

C
overvaluation of stock

D
undervaluation of liabilities

Solution

SECRET RESERVES:-
"A reserve which is not visible on the balance sheet is called secret reserves."
It is a surplus concealed. In case of a secret reserve existence, the actual financial position of the business is better than shown in the balance sheet. In the case of banks, insurance companies, and financial institutions secret reserves are justified.

CREATION OF SECRET RESERVES:-
Secret reserves may be created in the following ways :

1. High Value Of Goodwill:-
In the balance sheet if the value of goodwill is shown nominal or low but in fact, its value is high reserve may be created.

2. Shown More Bad Debts:-
If management has made excessive provisions for bad debts. In fact these are less than the reserves allocated. So keeping in view the difference secret reserves can be created.

3. Shown More Depreciation:-
By providing too much depreciation on fixed assets, management creates secret reserves.

4. More Liabilities Shown:-
By overvaluing the liabilities, management may create secret reserves. Due to this, profits reduce.

5. Low Value Of Fixed Assets:-
In the balance sheet, the value of fixed assets is shown very low real value is very high. In this situation, secret reserves may be created.

6. Under Value Of Current Assets:-
Management shows less value of the current assets in the balance sheet but the actual value of the current asset is greater. So the secret reserves may be created.

7. Contingent Liabilities As Red Liabilities:-
To create secret reserves management shows the contingent liabilities as real liabilities in the balance sheet. So profits and reserves may be reduced equal to the secret reserves.

8. Fictitious Liabilities Shown:-
To create the secret reserves management shows the fictitious as actual liabilities.

9. Capital Expenditure To Revenue:-
Sometimes to create the secret reserves management charges the capital expenditure to revenue. The profit is reduced.

10. By Omitting:-
Sometimes management omits some assets from the balance sheet and in this way it creates the secret reserves.
Question 7
1 / -0

The written down method is based on __________________ assumption of same amount.

A
Faulty

B
Realistic

C
Invalid

D
None of the above

Solution

This method is based on the assumption that in the earlier years the cost of repairs to the assets is low and hence more amount of depreciation should be charged. Also, in the later years, the cost of repairs will increase and therefore less amount of depreciation shall be provided.
Question 8
1 / -0

Depreciation is necessary under __________ act.

A
Depreciation act 1995

B
Companies act

C
SEBI Act

D
Income tax act

Solution

It is mandatory to claim depreciation under income tax act, 1961.
Earlier it was not mandatory to claim depreciation under section 32 of Income tax act which provide for depreciation on assets used for the purpose of business. The case "Mahendra Mills" probably being the most prominent one, which hold that assessee has an option to claim depreciation. In other words, if the assessee does not wish to avail of the benefits of depreciation for some reason, it cannot be forced upon him. To remedy this situation, the Act was amended and Explanation 5 to section 32(1) was inserted by the Finance Act 2001 w.e.f. 1 April 2002, which lays down that depreciation shall be granted whether or not the assessee claims the same i.e., the assessee does not have an option to claim depreciation or not but it is mandatory to claim.
Question 9
1 / -0

An asset is purchased in 2020 at Rs.10,000. Calculate the book value of the asset after 2 years, when depreciation is charged @ 10% p.a. under the straight-line method.

A
$$Rs. 8,100$$

B
$$Rs.8,000$$

C
$$Rs.9,000$$

D
$$Rs.8,570$$

Solution

Depreciation under straight line method and written down value method will be calculated as under:

SLM WDV Method
Cost of Assets: 10000 10000
Depreciation Year I @10% 1000 1000
----------------- ------------------
Balance 9000 9000
Depreciation Year II @10% 1000 900
----------------- ------------------
Balance after 2 years 8000 8100
---------------- -----------------
Question 10
1 / -0

Give journal entries for:
Transfer of balance in asset account in case of loss.

A
Profit and Loss A/c Dr.

To Asset A/c

B
Asset A/c Dr.

To Profit and Loss A/c

C
Bank A/c Dr.

To Asset A/c

D
None of the above

Solution

If the asset is disposed off, the profit or loss generated on account of sale has to be transferred to the respective asset a/c. If the sale proceed is more than the written down value of the asset, there will be profit and if the sale proceed is lower than the written down value, there will be loss on sale of asset.

For example , WDV of the machine is Rs.5000 which is sold for Rs.4500. There is a loss of Rs.500 on sale of asset. Following entry will be passed in the books of account for loss:

Profit & Loss A/c Dr. 500
Bank A/c Dr. 4500
To Asset A/c 5000

User

Question Analysis

Correct -
Wrong -
Skipped -

My Perfomance

Score
-
out of -
Rank
-
out of -

Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 61

Result

Depreciation Provisions and Reserves Test - 61

Score

-

Rank

-

SHARING IS CARING

Question 1

Rs. 0

Rs. 20000

Rs. 40000

Rs. 50000

Solution

Question 2

General reserve

Specific reserve

Capital reserve

None of these

Solution

Question 3

Rs.1050

Rs.1075

Rs.1875

Rs.13125

Solution

Question 4

Rs.54000

Rs.48600

Rs.60000

Rs.49000

Solution

Question 5

Historical cost

Written down value

Original cost

None of the above

Solution

Question 6

creating general reserve

providing excessive depreciation

overvaluation of stock

undervaluation of liabilities

Solution

Question 7

Faulty

Realistic

Invalid

None of the above

Solution

Question 8

Depreciation act 1995

Companies act

SEBI Act

Income tax act

Solution

Question 9

$$Rs. 8,100$$

$$Rs.8,000$$

$$Rs.9,000$$

$$Rs.8,570$$

Solution

Question 10

Profit and Loss A/c Dr. To Asset A/c

Asset A/c Dr. To Profit and Loss A/c

Bank A/c Dr. To Asset A/c

None of the above

Solution

User

Question Analysis

My Perfomance

Score

-

Rank

-

Results Announcement on: coming Monday

Stay Tuned: We’ll update you on your result via email or SMS.

Profit and Loss A/c Dr.

To Asset A/c

Asset A/c Dr.

To Profit and Loss A/c

Bank A/c Dr.

To Asset A/c