Depreciation Provisions and Reserves Test

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Depreciation Provisions and Reserves Test - 64

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Question 1
1 / -0

___________ of depreciation takes into account interest on capital outlay.

A
Sum of digit method

B
Annuity method

C
Depletion method

D
Straight line method

Solution

The annuity method of depreciation is also referred as the compound interest method of depreciation. If the cash flow of the asset being depreciated is constant over the life of the asset, then this method is called the annuity method. This method of depreciation takes into account interest on capital outlay.
Question 2
1 / -0

The pattern of annual depreciation charge of an asset for the three years was Rs. $$5000$$, Rs. $$4500$$ and Rs. $$4050$$. Discuss the rate of depreciation charge.

A
$$15\%$$ on WDV

B
$$15\%$$ on SLM

C
$$10\%$$ on WDV

D
$$90\%$$ on WDV

Solution

Under the SLM method of depreciation, the amount of depreciation is constant over the estimated working life of an asset.

Under the reducing balance method of depreciation, the amount of depreciation reduces every year as the book value of the asset reduces and the depreciation is charged on the book value of the assets.

In the given case, depreciation is reducing every year, that means the organization is following the written down value method @10%

For first year the amount of depreciation is Rs. 5000 which is 10% of Rs.50000.

Accordingly,

Cost of machine Rs.50000
Less: Depreciation @10% Rs. 5000
-----------------
WDV Rs.45000
Less: Depreciation @10% Rs. 4500
----------------
WDV Rs.40500
Less: Depreciation Rs. 4050
Question 3
1 / -0

An asset is subject to $$10\%$$ depreciation on reducing balance method. If the annual depreciation for the year $$2013-14$$ amounts to Rs. $$4500$$. The book value of the asset as on $$31.03.14$$ will be ___________.

A
Rs. $$45,000$$

B
Rs. $$40,500$$

C
Rs. $$50,000$$

D
Rs. $$48,000$$

Solution

WDV is a method of depreciation in which a fixed rate of depreciation is charged on the book value of the asset, over its useful life. The amount of depreciation goes on decreasing every year.

Annual depreciation for the year 2013-14 amounts to Rs. 4,500
Rate of depreciation = 10%
So, if Rs. 4,500 is 10% then how much will be the amount of book value on 31.03.13 i.e. 100%
Book value = (Rs. 4,500 x 100)/10 = Rs. 45,000
Book value on 31.03.14 = Book value on 31.03.13 - Depreciation of year 2013-14
Book value on 31.03.14 = Rs.45,000 - Rs.4,500
Book value on 31.03.14 = Rs.40,500
Question 4
1 / -0

In case there is revision in estimated useful life of a depreciable asset, the remaining unamortized amount is charged to __________.

A
remaining useful life

B
written off in the current year as current charges

C
written off in the current year as prior period adjustment

D
treated as deferred revenue expenditure to be written off in $$3$$ years

Solution

In case the useful life of the asset is changed, the amortised amount should be charged to the asset over the revised remaining estimated useful life of the asset. Such a revision should be treated as change in accounting estimates.
Question 5
1 / -0

An asset is subject to $$10\%$$ depreciation on reducing balance method. If the annual depreciation for the year $$2013-14$$ amounts to Rs. $$4500$$. The book value of the asset as on $$01.04.13$$ will be __________.

A
Rs. $$45,000$$

B
Rs. $$40,500$$

C
Rs. $$50,000$$

D
Rs. $$48,000$$

Solution

Annual depreciation for the year 2013.-14 amounts to Rs. 4,500
Rate of depreciation = 10% on WDV
So, if Rs. 4,500 is 10% then how much will be the amount of book value on 31-03-2013 i.e. 100%
Book value on 01.04.13 = (Rs. 4,500 x 100)/10 = Rs. 45,000
Question 6
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An asset was shown in the Balance sheet during the last three years at Rs. $$50000$$, Rs. $$45000$$ and Rs. $$40500$$. Find the depreciation for the $$4$$th year ___________.

A
Rs. $$4000$$

B
Rs. $$5000$$

C
Rs. $$4050$$

D
Rs. $$4500$$

Solution

WDV is a method of depreciation in which a fixed rate of depreciation is charged on the book value of the asset, over its useful life. The amount of depreciation goes on decreasing every year. In the given question the amount of depreciation decreased in every year hence, company is following WDV method of depreciation. The rate of depreciation charge is 10%.

1st year's book value = Rs. 50,000
2nd year's book value = Rs.45,000
Difference between two year book value =Rs. 5,000
Rate of depreciation = Rs.5,000/Rs.50,000 = 10%
Hence, Depreciation of 4th year = Rs.40,500 x 10% = Rs. 4,050
Question 7
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Net surplus/deficiency on disposal/replacement/discarding of an asset is credited/charged to ___________.

A
Trading a/c

B
Capital Reserve a/c

C
Profit and loss a/c

D
Revaluation a/c

Solution

Fixed assets are having its estimated working life too. Hence at the end of its working life or due to any other reasons, assets are being sold.
The net surplus/ deficiency on such sale/disposal of an asset should be credited or debited to the profit & loss account.
If the sale proceed exceeds the book value of the asset, there will be a profit which has to be credited to profit & loss account.
If the sale proceed is less than the book value of asset, there will be a loss which need to be debited to profit & loss account.
Question 8
1 / -0

Which of the following is a true statement?

A
Under Income-tax Act reducing balance method of depreciation is allowed

B
Land is subject to depreciation at a very nominal rate

C
Depreciation is the process of valuation of the assets

D
Depreciation is a cash expense

Solution

Option A is correct. Income Tax Act believes in writing off an asset according to the benefits received from it. Generally either the revenues tend to fall continuously on year to year basis or revenues remain the same but repair and maintenance cost begin to rise. Due to matching concept, in general, written down value method of depreciation is there under the Income Tax Act, 1961.
Question 9
1 / -0

If cost of an asset is Rs. $$8,000$$, life is $$3$$ years and estimated scrap value is Rs. $$1,000$$, the rate of depreciation under WDV method is ___________.

A
$$33.3\%$$ apprx

B
$$66.6\%$$ apprx

C
$$53.6\%$$ apprx

D
$$75\%$$ apprx
Question 10
1 / -0

ABC Ltd, acquired a new Machine for Rs. $$500,000$$ on $$1$$st April $$2010$$ and spent Rs. $$20,000$$ on its installation and Rs. $$5,000$$ on transportation. The firm charges depreciation at $$10\%$$ on WDM method. The depreciation charges for 2010-11 will be ___________.

A
Rs. $$50,000$$

B
Rs. $$52,500$$

C
Rs. $$47,250$$

D
Rs. $$47,650$$

Solution

Depreciable cost of machine = Purchase cost + Installation cost + Transportation
Depreciable cost of machine = Rs. 5,00,000 + Rs. 20,000 + Rs. 5,000 = Rs. 5,25,000
Depreciation of 2010-11 =Rs. 5,25,000 x 10% = Rs. 52,500

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Depreciation Provisions and Reserves Test - 64

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Depreciation Provisions and Reserves Test - 64

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Question 1

Sum of digit method

Annuity method

Depletion method

Straight line method

Solution

Question 2

$$15\%$$ on WDV

$$15\%$$ on SLM

$$10\%$$ on WDV

$$90\%$$ on WDV

Solution

Question 3

Rs. $$45,000$$

Rs. $$40,500$$

Rs. $$50,000$$

Rs. $$48,000$$

Solution

Question 4

remaining useful life

written off in the current year as current charges

written off in the current year as prior period adjustment

treated as deferred revenue expenditure to be written off in $$3$$ years

Solution

Question 5

Rs. $$45,000$$

Rs. $$40,500$$

Rs. $$50,000$$

Rs. $$48,000$$

Solution

Question 6

Rs. $$4000$$

Rs. $$5000$$

Rs. $$4050$$

Rs. $$4500$$

Solution

Question 7

Trading a/c

Capital Reserve a/c

Profit and loss a/c

Revaluation a/c

Solution

Question 8

Under Income-tax Act reducing balance method of depreciation is allowed

Land is subject to depreciation at a very nominal rate

Depreciation is the process of valuation of the assets

Depreciation is a cash expense

Solution

Question 9

$$33.3\%$$ apprx

$$66.6\%$$ apprx

$$53.6\%$$ apprx

$$75\%$$ apprx

Question 10

Rs. $$50,000$$

Rs. $$52,500$$

Rs. $$47,250$$

Rs. $$47,650$$

Solution

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