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Depreciation Provisions and Reserves Test - 65

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Depreciation Provisions and Reserves Test - 65
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  • Question 1
    1 / -0
    Depletion method is used in all except __________.
    Solution
    Depletion is a periodic charge to expense for the use of natural resources. Thus, it is used in situations where a company has recorded an asset for such items as oil reserves, coal deposits, or gravel pits etc. Whereas plant and machinery is a fixed tangible asset so, depreciation will be charged.
  • Question 2
    1 / -0
    A purchased a machine for Rs. $$200,000$$ and incurred Rs. $$5000$$ on its installation and commissioning. After $$3$$ yrs it is sold for Rs. $$100,000$$ resulting into a loss of Rs. $$44,850$$. The book value of the machine on the date of sale is ___________.
    Solution
    Book value of the asset on the date of sale = Selling cost of asset + Loss on sale of assets
    Book value of the asset on the date of sale = Rs. 1,00,000 + Rs. 44,850 = Rs. Rs. 1,44,850
  • Question 3
    1 / -0
    A machinery was purchased on $$1-1-2013$$. It was delivered on $$1-4-2013$$. The installation was completed on $$1-7-2013$$. The trail run was completed on $$30-9-2013$$ and was made available for use on $$1-10-2013$$. The actual utilization started from $$1-12-2013$$. The effective period for calculation of depreciation for $$2013$$ is __________.
    Solution
    The machinery is available for use from 1-10-2013,
    The actual utilisation of the machine from 1-12-2013
    Machinery should be depreciated from the date of availability of the machine i.e. 1-10-2013
    Hence, The effective period for calculation of depreciation for 2013 is 3 months

  • Question 4
    1 / -0
    Secret reserve is created by way of_________.
    Solution
    Secret reserve is a reserve, the existence and/ or the amount of which is not disclosed in the balance sheet. It is also called as "Hidden Reserves or Internal Reserves."
    Secret reserves are created by :
    • Excessive depreciation on the asset.
    • Excessive overvaluation of liability
    • Showing a contingent liability of an actual liability or as provision.
    • Charging capital expenditure to revenue or crediting revenue receipts to an asset.
  • Question 5
    1 / -0
    On $$1-1-2014$$, a company acquired a car for Rs. $$350,000$$ on instalment basis and paid Rs. $$1,50,000$$ as down payment whose cash price was Rs. $$3,00,000$$. During $$2014$$, one instalment of Rs. $$50,000$$ (including Rs. $$15,000$$ interest) was paid. The amount of depreciation for the year $$2016$$ at $$10\%$$ on SLM is ___________.
    Solution
    If anything is purchased on installment basis, it comprises of interest expense in the total cost.
    Here, the cash price of the car is $$Rs.3,00,000$$ whereas company acquired it at $$Rs.3,50,000$$ which clearly indicates $$Rs.50,000$$ is paid towards interest expense and interest expense can not be capitalized.
    Therefore, Depreciation is calculated on the actual price of the car i.e. $$Rs.3,00,000$$ X $$10$$ %= $$Rs.30,000$$ on SLM basis.
  • Question 6
    1 / -0
    A company purchased new Machine for Rs. $$50,000$$ on $$1$$st April and spent Rs. $$10,000$$ on its installation and Rs. $$5,000$$ on transportation. The useful life of the machine is estimated $$10$$years. The firm provides depreciation using sum of years digit method. What is the depreciation for the last year of working life of the machine?
    Solution
    Depreciation expense is calculated under sum of year's digit method as:
    Depreciation expense = (Remaining useful life of the asset / Sum of the year's digit) x Depreciable cost
    Depreciable cost = Purchase cost + Installation cost + Transportation
    Depreciable cost = Rs. 50,000 + Rs. 10,000 + Rs. 5,000 =  Rs. 65,000

    Year  Deprecation base (a)Remaining life (b) Depreciation fraction (b/sum)Depreciation expense  Book value
     1 65,000 10 10/55 11,818 53,182
     2  65,000 9 9/55 10,636 54,364
     3  65,000 8 8/55 9,455 55,545
     4  65,000 7 7/55 8,273 56,727
     5  65,000 6 6/55 7,091 57,909
    6   65,000 5 5/55 5,909 59,091
     7  65,000 4 4/55 4,727 60,273
     8  65,000 3 3/55 3,545 61,455
     9  65,000 2 2/55 2,364 62,636
     10  65,000 1 1/55 1,182 63,818
      Total 55   
  • Question 7
    1 / -0
    Which of the following A/c would not be transferred to profit and loss A/c?
    Solution

    Option C is the correct one.

    Accumulated depreciation appears either shown as a deduction from the asset or the same may appear in the liability side of the Balance Sheet.and other two items are expenses (bad debts & Discount allowed) so it would be debited to P&L a/c and another Discount received credited to P& L account.as income for the year.
  • Question 8
    1 / -0
    Calculate the rate of depreciation under the Straight Line method from the following details.
    Cost of acquisition of the Machine Rs. $$140,000$$, Estimated scrap value at the end of $$10$$ years Rs. $$7,500$$, useful life of the Machine $$10$$ years.
    Solution

  • Question 9
    1 / -0
    Which of these is an example of accelerated method of depreciation.
    Solution
    Accelerated depreciation is a method used because of its greater depreciation expenses in early years of the asset.
    Accelerated depreciation methods are
    1. Double declining method/Reducing balance method
    2.Sum of the years' digit method
    3.Written down value method.
    Therefore option A is correct.
  • Question 10
    1 / -0
    A firm has a policy of charging depreciation on Plant and Machinery @20% under WDV method. Find the book value of the plant as on 31.03.09 if the same was purchased on 1.04.07 for Rs.50,000.
    Solution

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