Basics of Financial Mathematics Test 30

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Basics of Financial Mathematics Test 30

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Question 1
1 / -0

Depreciation does not depends on ___________.

A
total cost of acquisition

B
scrap value

C
market price

D
total estimated life

Solution

when we calculate the depreciation, we are using the total cost of acquisition, scrap value and total estimated life in the formula.'
Question 2
1 / -0

Roma took a loan of $$Rs.16,000$$ against her insurance policy at the rate of $$12\dfrac{1}{2}%$$ per annum. Calculate the total compound interest that will be paid by Roma after $$3$$ years.

A
Rs. $$6781.25$$

B
Rs. $$6925.30$$

C
Rs. $$4296.82$$

D
Rs. $$3579.71$$

Solution

In case of compund interest,

$$C.I.=P\left[\left(1+\dfrac{R}{100}\right)^N-1\right]$$

where : $$C.I.$$ - Compound Interest, $$P$$ - Principal, $$R$$ - Rate of Interest, $$N$$ - Number of years.

The compound interest Rama has to pay
$$=16000\left[\left(1+\dfrac{12.5}{100}\right)^3-1\right]\\=16000\times [(1.125)^3-1]\\=16000\times0.424\\=Rs.\ 6781.25\ \ \ $$
Question 3
1 / -0

A change in depreciation method under AS 6 is treated as __

A
Change in accounting policy

B
Change in accounting estimates

C
Prior period adjustment

D
Departure from AS 6

Solution

A change in depreciation method under AS 6 is treated as change in accounting policy.
Depreciation is a decrease in the value of the fixed assets due to wear and tear, obsolescence and passage of time.
Depreciation is charged only on the fixed Tangible Assets.
Question 4
1 / -0

Which of these statements is true about depreciation.

A
It is a non-deductible expense

B
It is an appropriation of profit

C
It is a non - cash expense

D
It is a process of valuation

Solution

Depreciation is a decrease in the value of the fixed assets due to wear and tear, obsolescence and passage of time.
Depreciation is charged only on the fixed Tangible Assets.
Depreciation is not a cash expense as there is no amount of cash outflow in depreciation, it is just a decrease in the value of the asset.
Question 5
1 / -0

Allocation of the cost of a fixed assets over its useful life is called ___________.

A
Allocation

B
Apportionment

C
Depreciation

D
Depletion

Solution

Allocation of the cost of fixed assets over their useful life is called depreciation.
Depreciation is a decrease in the value of the fixed assets due to wear and tear, obsolescence and passage of time.
Depreciation is charged only on the fixed Tangible Assets.
Question 6
1 / -0

Depreciation accounting follow ___________ principle.

A
matching cost

B
historical cost method

C
revenue recognizing

D
going concern concept

Solution

The matching principle allows an asset to be distributed and matched over the course of its useful life in order to balance the cost over a given period. Depreciation ensures that the cost of fixed assets is not charged to its profit and loss account at once but is 'matched' against economic benefits (revenue or cost savings) earned from the assets use over several accounting periods.
Question 7
1 / -0

Suppose for the principal $$P$$, rate $$R\%$$ and time $$T$$ years the simple interest is $$S$$ and compound interest is $$C$$. Consider the possibilities :
(i) $$C > S$$ (ii) $$C = S$$ (iii) $$C < S$$

Which of the following options hold?

A
Only (i) is correct.

B
Either (i) or (ii) is correct

C
Either (ii) or (iii) is correct

D
Only (iii) is correct.

Solution

Case 1. $$C> S$$
This is possible if interest is compounded quarterly or half-yearly.
Case 2. $$C=S$$
This is possible if interest is compounded yearly.
Case 3. $$C<S$$
It can not be true because simple interest cannot be greater than compound interest.
Hence, Option B is correct option.
Question 8
1 / -0

____________ deals with Depreciation Accounting.

A
AS-$$6$$

B
AS-$$7$$

C
AS-$$8$$

D
AS-$$2$$

Solution

Accounting standard (AS) 6, Depreciation accounting, was issued by the ICAI in November 1982. In accounting term, depreciation is defined as the reduction of recorded cost of fixed asset in a systematic manner until the value of the asset become zero or negligible.
Question 9
1 / -0

Depreciation is a ___________.

A
Non-recurring expenses

B
Non-cash expense

C
Non-allowable expense

D
Not an accounting expense

Solution

Depreciation is a decrease in the value of the fixed assets due to wear and tear, obsolescence and passage of time.
Depreciation is charged only on the fixed Tangible Assets.
Depreciation is not a cash expense as there is no amount of cash outflow in depreciation, it is just a decrease in the value of the asset.
Question 10
1 / -0

Obsolescence of a depreciable asset may be caused by
I. Technological changes
II. Improvement in the production method
III. Legal or other restrictions

A
Only (I)

B
Both (I) and (II)

C
All (I), (II), (III)

D
Only (III)

Solution

Obsolescence means the fact of being "out - of - date". It implies an existing asset becoming out of date on account of the availability of a better type of asset. It can be due to any factor: -
1) Technological Changes
2) Improvements in production methods
3) Change in market demand
4) Legal or other restrictions.

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Basics of Financial Mathematics Test 30

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Basics of Financial Mathematics Test 30

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SHARING IS CARING

Question 1

total cost of acquisition

scrap value

market price

total estimated life

Solution

Question 2

Rs. $$6781.25$$

Rs. $$6925.30$$

Rs. $$4296.82$$

Rs. $$3579.71$$

Solution

Question 3

Change in accounting policy

Change in accounting estimates

Prior period adjustment

Departure from AS 6

Solution

Question 4

It is a non-deductible expense

It is an appropriation of profit

It is a non - cash expense

It is a process of valuation

Solution

Question 5

Allocation

Apportionment

Depreciation

Depletion

Solution

Question 6

matching cost

historical cost method

revenue recognizing

going concern concept

Solution

Question 7

Only (i) is correct.

Either (i) or (ii) is correct

Either (ii) or (iii) is correct

Only (iii) is correct.

Solution

Question 8

AS-$$6$$

AS-$$7$$

AS-$$8$$

AS-$$2$$

Solution

Question 9

Non-recurring expenses

Non-cash expense

Non-allowable expense

Not an accounting expense

Solution

Question 10

Only (I)

Both (I) and (II)

All (I), (II), (III)

Only (III)

Solution

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