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Depreciation Provisions and Reserves Test - 6

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Depreciation Provisions and Reserves Test - 6
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  • Question 1
    1 / -0

    Following are the disadvantages of secret reserves except

    Solution

    Heavy unforeseen losses of extraordinary nature can be met without disclosing them in the financial statements without affecting  the normal business profit.

  • Question 2
    1 / -0

    A machine purchased for Rs.1,00,000 on November 01, 2004, having accumulated depreciation amounting to Rs.60,000 was sold on April 1, 2009 for Rs.35,000. The Asset Disposal account will be prepared. Calculate the amount of loss on sale

    Solution

    Cost of the machine = 1,00,000

    Accumulated depreciation on the machine = 60,000

    Written down value as on 1st April 2009 = 1,00,000- 60,000= 40,000

    Sale value = 35,000

    Loss on sale of machinery = 40,000- 35,000= 5000

  • Question 3
    1 / -0

    A company purchased a vehicle for Rs.6000. That will be used for 5 years and its residual value is expected to be Rs.1000. What will be the annual amount of depreciation using straight line method?

    Solution

    Under straight line method depreciation is calculated as follows:( Cost - residual value)/ No of years of life. In the given sum (6000-1000)/ 5= 1000

  • Question 4
    1 / -0

    Under what situations does a business invest the fund outside

    a. A ready cash is required at a future date

    b. The funds cannot be profitably invested in the business itself

    Solution

    When a company invests its reserve amount outside it is known as reserve fund. The company will invest outside when ready cash is required at a certain date and when it is not sure about the profitable investment of the reserve in its business itself.

  • Question 5
    1 / -0

    David ltd. Purchased a machine at a cost of Rs.900000 on 01.01.2008.It was decided to charge depreciation @ 10 % p.a on written down value method. Calculate the amount of depreciation to be charged in the second year.

    Solution

    Year one Depreciation = 9,00,000*10/100 = 90,000

    Value at the end of the year = 9,00,000-90,000 = 8,10,000

    Year two depreciation = 8,10,000* 10/100 = 81,000

  • Question 6
    1 / -0

    M/s Singh purchased a plant for Rs. 500000 on April, 01 2002, and spent Rs.50000 for its installation. The salvage value of the plant after its useful life of 10 years is estimated to be Rs.10000.Calculate amount of depreciation as depreciation is charged using straight line method

    Solution

    Total cost of the asset = 500000+50000= 550000

    Residual value = 10000

    Value of depreciation =( 550000-10000)/10 = 54000

  • Question 7
    1 / -0

    What will be depreciation for the second year @10 % on Rs.15000 purchase price under the straight line method.

    Solution

    Under straight line method the depreciation amount remains the same for all the years throughout the life of the asset. Hence depreciation = 15000*10/100 = 1500

  • Question 8
    1 / -0

    What will be depreciation for the second year @10 % on Rs.15000 purchase price under the written down value method

    Solution

    Under written down value method depreciation is charged on the balance value of the asset at the end of the financial year.

    Year 1 Depreciation = 15000*10/100=1500

    Written down value = 15000-1500=13500

    Year 2 Depreciation = 13500*10/100= 1350

  • Question 9
    1 / -0

    A fixed asset having book value of Rs.2000 was sold for Rs.1500. Find out gain or loss.

    Solution

    Book value is the value of the asset after depreciation. So the sale value is compared with the book value to find out the profit or loss. 

    2000-1500=500 loss on sale of asset.

  • Question 10
    1 / -0

    Match the following. Options are

    Solution

    General reserve is created for no specific purpose to meet any unforeseen contingency, specific reserve is created to meet a specific expense and capital reserves are created out of capital profits which may or may not involve cash receipt.

  • Question 11
    1 / -0

    The original cost of the asset is Rs.250000.The useful life of the asset is 10 years and net residual value is estimated to be Rs.50000. Now, the amount of depreciation to be charged every year will be

    Solution

    Cost of the machine = 250000

    Residual value = 50000

    Life of the machine 10 years

    Depreciation to be charged = (250000-50000)/10 = 20000

  • Question 12
    1 / -0

    An asset was bought for Rs.40000 on 1-1-1988. It was decided to charge the depreciation on this asset @ 10% under reducing balance method. The depreciation on this asset for the year ended 31/12/90 will be:

    Solution

    Under writted down value method : 

    Cost as on 1/1/1988 = 40000 Value as on 1/1/89 = 36000 Value as on 1/1/90 = 32400 Less: Depreciation for 1988 = 4000 Less: Depreciation for 1989 = 3600 Less: Depreciation for 1990 = 3240

    Value as on 31/12/88 = 36000 Value as on 31/12/1989 = 32400 Value as on 31/12/1990 = 29160

  • Question 13
    1 / -0

    M/s Mohit and Sons acquired a machine for Rs.180000 on October 01, 2012, and spent Rs.20000 for its installation. The firm writes-off depreciation at the rate of 10% on original cost every year. Record necessary journal entries for the year 2012 for the expenses incurred on installation

    Solution

    The expenses incurred on installation of machinery is treated as a capital expenditure and is charged to the machinery a/c. The expenses incurred till the machinery is put to use is charged to the machinery account.

  • Question 14
    1 / -0

    Original cost of a machinery is Rs.500000, salvage value is Rs.20000. Expected useful life is 10 years. What will be the amount of depreciation for the fourth year according to original cost method

    Solution

    Original cost method means straight line method where depreciation remains the same throughout the life of the asset. 

    Cost = 500000  Life =10 years   Salvage value = 20000

    Depreciation = (500000- 20000)/10 = 48000.

  • Question 15
    1 / -0

    A machine which cost Rs. 200000 is depreciated at 25 % per year using the written down value method. At the end second year the value of machine will be:

    Solution

    Value of the machine = 2,00,000

    Rate of depreciation is 25%

    1St year depreciation is = 2,00,000*25/100= 50000

    Value at the end of first year = 2,00,000 - 50000= 1,50,000

    Depreciation for 2nd year = 1,50,000 * 25/100 = 37,500

    Value at the end of second year = 1,50,000 - 37,500 = 1,12,500

  • Question 16
    1 / -0

    A fixed asset was bought for Rs.5000. Its accumulated depreciation is Rs.3000 and rate of depreciation is 20%. Calculate its depreciation expenses for the current accounting period using reducing balance method ?

    Solution

    Under written down balance method, depreciation is calculated on the written down value of the asset. In the above example : Cost = 5000, Accumulated depreciation = 3000, and Rate of depreciation = 20%. Amount of depreciation = (5000-3000)*20% = 400.

  • Question 17
    1 / -0

    A business bought a plant at a cost of Rs.20000, with an estimated life of 5 years and an estimated residual value of Rs. 2000, the annual depreciation on this asset will be

    Solution

    Cost of the asset = 20000. Residual value = 2000. Annual depreciation value = (20000-2000)/ 5 = 3600

  • Question 18
    1 / -0

    Shyam Ltd. purchased machinery on 1stMay, 2009 for Rs.60000. On 1stJuly, 2010 it purchased another machine for Rs. 20000. On 31st March, 2011, it sold the first machine purchased in 2009 for Rs. 38500. Depreciation provided @ 20% p.a. on the original cost every year. Accounts are closed 31st December every year. Calculate profit on machine

    Solution

    Cost as on 1/5/2009 = 60000 Value as on 1/1/2010 = 52000 Value as on 1/1/2011 = 40000 Value as on 31/3/2011 = 37000

    Less depreciation for 2009 Less Depreciation for 2010 12000 Less Depreciation till 31/3/2011 = 3000    Selling price = 38500

    ( 60000*20/100*8/12) = 8000 (60000*20/100) (60000*20/100*3/12) Profit = 1500

    Value as on 31/12/2009 = 52000 Value as on 31/12/2010 = 40000 Value as on 31/3/2011 = 37000 

  • Question 19
    1 / -0

    A car was purchased for Rs.5500. Its residual value was estimated to be Rs.500 while its monthly depreciation expenses are Rs.100 using straight line method. Which of the following is the annual rate of depreciation?

    Solution

    Amount of depreciation per month = 100....so annual depreciation = 1200. Rate of depreciation = (1200/5000) = 0.24

  • Question 20
    1 / -0

    Neeraj and Co. purchased machinery for Rs.21000 in 01.01.2011.The estimated life of the machinery is 10 year after its residual value will be Rs.1000 only. Find the amount of annual depreciation according to Fixed Installment Method

    Solution

    Under fixed installment method depreciation remains the same year after year.

    Cost of machinery = 21000 

    Residual value = 1000

    Depreciation = (21000 - 1000)/10 = 2000

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