Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 62

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Question 1
1 / -0

Under which depreciation method :
Asset account continues to appear at its original cost year after year over its entire life.

A
Straight line

B
Weighted average

C
Provision for depreciation

D
None of the above

Solution

There are two method of recording depreciation -
1. By charging to asset account - Under this method of recording depreciation, depreciation is directly credited to respective asset account result of which is that respective asset account appears at its book value less depreciation till date.
2. By creating Provision for depreciation/ Accumulated depreciation Account - Under this method of recording depreciation, depreciation is credited to the provision for depreciation account and as result respective asset account appears at its original cost.
Question 2
1 / -0

Under straight line method of depreciation is charged on the basis of _________ .

A
Market value

B
Book value

C
Original cost

D
None of the Above

Solution

Under the staright line method of depreciation, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each aaccounting period over the expectd useful life of the asset.
Question 3
1 / -0

The amount incurred on asset additions/extensions is _____.

A
Added to assets

B
Deducted from assets

C
Added to liabilities

D
Deducted from liabilities

Solution

Any addition done in fixed asset should be added to the asset a/c. Depreciation on addition has to be provided on pro-rata basis i.e. depending on the utilization of assets. For example, if an addition is done on 1st Oct 2017, than depreciation will be charged for 6 months only on the additions.
Question 4
1 / -0

Factor which causes deprecation due to betterment in technology is ___________.

A
Obsolescence

B
Depletion

C
Exhaustment

D
None of these.
Solution
There are four main factors to consider while calculating depreciation expense:
- The cost of the asset
- The estimated salvage value of the asset. Salvage value (or residual value ) is the amount of money the company expects to recover, less disposal costs, on the date the asset is scrapped, sold, or traded in.
- The estimated useful life of the asset. Useful life refers to the window of time that a company plans to use an asset. Useful life can be expressed in years, months, working hours, or units produced.
- Obsolescence should be considered when determining an asset’s useful life and will affect the calculation of depreciation. For example, a machine capable of producing units for 20 years may be obsolete in six years; therefore, the asset’s useful life is six years.
Question 5
1 / -0

Depreciation is deductible cost for ____ purpose.

A
Expense

B
Income

C
Tax

D
GST

Solution

Depreciation allowance is an amount of annual allowance to recover the cost of property that has declined due to wear and tear, deterioration or obsolescence. For tax purpose, a deduction can be claimed for depreciation on the most tangible property (except land) such as buildings, machinery, vehicles, etc.
Question 6
1 / -0

Disposal of asset can be done________.

A
At the end of its useful life

B
During its useful life due to obsolescence

C
During its useful life due to abnormal factor

D
All of the above
Solution
An asset can be disposed off due to the following reasons:
at the end of its useful life
during its useful life due to obsolescence
during its useful lie due to abnormal factors like technological changes.
Question 7
1 / -0

Give journal entries:
For recording purchase of asset.

A
Asset A/c Dr.

To Bank A/c

B
Asset A/c Dr.

To Vendor A/c

C
Asset A/c Dr.

To Buyer A/c

D
Both (a) and (b)

Solution

As per the golden rules of accounting for real account, what comes in debit and what goes out is credit.
In light of above rule, journal entry for purchase of asset should be:
1. Asset A/c Dr.
To Bank A/c
(Being asset purchased for cash)
2. Asset A/c Dr.
To Vendor/ creditor A/c
(Being Asset purchased on credit)
Question 8
1 / -0

Under written down value method the annual amount of depreciation is______.

A
Always same

B
Goes on decling

C
Keep on increasing

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 9
1 / -0

_____________ is a factor which occurs due to decrease in physical volume of asset.

A
Depletion

B
Reduction

C
Deduction

D
None

Solution

The term 'Depletion' refers to the physical deterioration by the exhaustion of natural resources (ore-deposits in mines, oil wells, quarries, timber stands etc.
Question 10
1 / -0

When separate provision for depreciation A/c is not maintained the depreciation is charged directly to __________.

A
Asset A/c credit side

B
Asset A/c Debit side

C
Liabilities side

D
None of the Above

Solution

When the depreciation is charged by creating accumulated depreciation account, following journal entry is passed:

Depreciation A/c Dr.
To Accumulated Depreciation A/c

Under accumulated depreciation method, a separate account is created for accumulation of depreciation instead of being adjusted in asset a/c.

When separate provision for depreciation a/c is not maintained, the depreciation is charged directly to asset a/c for which following journal entry will be passed:

Depreciation A/c Dr.
To Assets A/c

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Re-Attempt Weekly Quiz Competition

Depreciation Provisions and Reserves Test - 62

Result

Depreciation Provisions and Reserves Test - 62

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Rank

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SHARING IS CARING

Question 1

Straight line

Weighted average

Provision for depreciation

None of the above

Solution

Question 2

Market value

Book value

Original cost

None of the Above

Solution

Question 3

Added to assets

Deducted from assets

Added to liabilities

Deducted from liabilities

Solution

Question 4

Obsolescence

Depletion

Exhaustment

None of these.

Solution

Question 5

Expense

Income

Tax

GST

Solution

Question 6

At the end of its useful life

During its useful life due to obsolescence

During its useful life due to abnormal factor

All of the above

Solution

Question 7

Asset A/c Dr. To Bank A/c

Asset A/c Dr. To Vendor A/c

Asset A/c Dr. To Buyer A/c

Both (a) and (b)

Solution

Question 8

Always same

Goes on decling

Keep on increasing

None of the Above

Solution

Question 9

Depletion

Reduction

Deduction

None

Solution

Question 10

Asset A/c credit side

Asset A/c Debit side

Liabilities side

None of the Above

Solution

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Asset A/c Dr.

To Bank A/c

Asset A/c Dr.

To Vendor A/c

Asset A/c Dr.

To Buyer A/c