Basics of Financial Mathematics Test 37

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Basics of Financial Mathematics Test 37

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Question 1
1 / -0

If a firm produces goods with Rs. 10,000 and the cost of raw materials is Rs. 10,000 and the firm will pay tax on Rs. 4000. It is paying tax according to:

A
VAT

B
CENVAT

C
MODVAT

D
None of the above

Solution

The firm is paying tax according to the VAT system. VAT stands for Value Added Tax, which is a type of tax that is assessed incrementally, based on the increase in value of a product or service at each stage of production or distribution.
Question 2
1 / -0

Depreciation accounting is _______________.

A
A process of valuation of fixed asset

B
A process of allocation of the cost of fixed asset

C
A method of providing funds for replacement

D
A method of comparison

Solution

Depreciation is related to all fixed assets. it is apportioning the cost of the asset by writing it off over the life of the asset. It is also used to record the decline in the value of asset due to passage of time, wear and tear etc.
Question 3
1 / -0

With reference to manufacturing account, which of the following is not true:

A
Depreciation on Factory Plants Machinery appears

B
Depreciation on Factory Land & Building appears

C
Depreciation on Office Land & Building appears

D
None of these

Solution

In manufacturing account all the expenses and income related to the manufacturing the goods is recorded. Depreciation on machinery, factory land will appear in the manufacturing account but Depreciation on office land and building will be shown in the profit and loss account and not in manufacturing account.
Question 4
1 / -0

Depreciation is related to:

A
Current Assets

B
Investment

C
All Fixed Assets

D
All Fixed Tangible Assets

Solution

Depreciation is related to all fixed assets. it is apportioning the cost of the asset by writing it off over the life of the asset.
It is also used to record the decline in the value of asset due to passage of time, wear and tear etc.
Question 5
1 / -0

When the plant and machinery are in very good condition, depreciation:

A
Will not be provided

B
Is to be provided as usual

C
May or may not be provided

D
None of the above

Solution

When the plant and machinery are in a very good condition, depreciation will be provided as usual. Depreciation is writing off the cost of the asset over the useful life of the asset. The reason can be passage of time, wear and tear etc. Even if the machinery is in good condition the depreciation has to be provided to apportion the cost over the life of the asset.
Question 6
1 / -0

Which of the following statement is true?

A
Depreciation provision is of the discretion of the management

B
Depreciation is a charge against profit

C
Depreciation is provided only when there is profit

D
Depreciation is an appropriation of profit

Solution

Depreciation is a charge against profit as it is charged regardless of whether there is profit or loss.
They are either debited to profit or loss account or to the respective provision account.
Question 7
1 / -0

Useful life of a depreciation asset should be estimated after considering:

A
Expected Physical wear & tear

B
Obsolescence

C
Legal or other limits on the use of the asset

D
Historical cost

E
(A), (B), & (C)

Solution

Useful life of asset is decided on the basis of its use and expected physical wear & tear, legal or other limits on the use of the asset.
Useful life means for how many years owner can use machine in good condition and with good output.
Question 8
1 / -0

If the Market price of machinery is more than the book value then ________________.

A
Depreciation need not be provided

B
Depreciation will be provided

C
Depreciation will be provided but less

D
None of the above

Solution

Book value is a measure of all of a company's assets: stocks, bonds, inventory, manufacturing equipment, real estate, etc. In theory, book value should include everything down to the pencils and staples used by employees, but for simplicity's sake companies generally only include large assets that are easily quantified.
Question 9
1 / -0

A sum of money becomes $$\text{Rs. }6,500$$ after $$3$$ years and $$\text{Rs. }10,562.50$$ after $$6$$ years on compound interest. Find the initial amount of the money.

A
$$\text{Rs. }4,000$$

B
$$\text{Rs. }4,500$$

C
$$\text{Rs. }4,800$$

D
None of these

Solution

Let the initial amount of money be $$P$$.
$$A=P{ \left( 1+\dfrac { R }{ 100 } \right) }^{ T }$$ where $$R=$$ Rate of Interest and $$T=$$ Time period.

Amount after $$3$$ years $$=6500$$
$$\Rightarrow \quad 6500=P{ \left( 1+\dfrac { R }{ 100 } \right) }^{ 3 }\longrightarrow \left( I \right) $$

Amount after $$6$$ years $$=10,562.5$$
$$\Rightarrow \quad 10562.5=P{ \left( 1+\dfrac { R }{ 100 } \right) }^{ 6 }\quad \longrightarrow \left( II \right) $$

From eq$$(I)$$,
$$\dfrac { 6500 }{ P } ={ \left( 1+\dfrac { R }{ 100 } \right) }^{ 3 }$$
$$\Rightarrow \quad { \left( \dfrac { 6500 }{ P } \right) }^{ 2 }={ \left( 1+\dfrac { R }{ 100 } \right) }^{ 6 }\quad \longrightarrow \left( III \right) $$

Putting eq$$(III)$$ in eq$$(II)$$
$$10562.5=P{ \left( \dfrac { 6500 }{ P } \right) }^{ 2 }$$
$$\Rightarrow \quad 10562.5=P\times \dfrac { { \left( 6500 \right) }^{ 2 } }{ { P }^{ 2 } } $$
$$\Rightarrow \quad P=\dfrac { { \left( 6500 \right) }^{ 2 } }{ 10562.5 } $$

$$=4000$$

Hence, the initial amount of money is equal to $$\text{Rs. }4000$$.
Question 10
1 / -0

The profit on depreciation policy is transferred to :

A
Profit and loss A/c

B
Asset A/c

C
Depreciation reserve A/c

D
None of the above

Solution

Depreciation reserve is a business fund in which the probable replacement cost of equipment is accumulated each year over the life of the asset. It can be replaced readily when it becomes obsolete and totally depreciated. It is the total depreciation charged against all productive assets as stated on the balance sheet.

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Basics of Financial Mathematics Test 37

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Basics of Financial Mathematics Test 37

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Question 1

VAT

CENVAT

MODVAT

None of the above

Solution

Question 2

A process of valuation of fixed asset

A process of allocation of the cost of fixed asset

A method of providing funds for replacement

A method of comparison

Solution

Question 3

Depreciation on Factory Plants Machinery appears

Depreciation on Factory Land & Building appears

Depreciation on Office Land & Building appears

None of these

Solution

Question 4

Current Assets

Investment

All Fixed Assets

All Fixed Tangible Assets

Solution

Question 5

Will not be provided

Is to be provided as usual

May or may not be provided

None of the above

Solution

Question 6

Depreciation provision is of the discretion of the management

Depreciation is a charge against profit

Depreciation is provided only when there is profit

Depreciation is an appropriation of profit

Solution

Question 7

Expected Physical wear & tear

Obsolescence

Legal or other limits on the use of the asset

Historical cost

(A), (B), & (C)

Solution

Question 8

Depreciation need not be provided

Depreciation will be provided

Depreciation will be provided but less

None of the above

Solution

Question 9

$$\text{Rs. }4,000$$

$$\text{Rs. }4,500$$

$$\text{Rs. }4,800$$

None of these

Solution

Question 10

Profit and loss A/c

Asset A/c

Depreciation reserve A/c

None of the above

Solution

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