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Depreciation Provisions and Reserves Test - 7

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Depreciation Provisions and Reserves Test - 7
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  • Question 1
    1 / -0

    Rahul Ltd. purchased a Machinery on 1st May, 2009 for Rs.60000. On 1St July, 2010 it purchased another Machine for Rs.20000. On 31st March, 2011 it sold off the first machine purchased in 2009 for Rs.39000. Depreciation is provided at 20% on the original cost each year. Accounts are closed each year on 31st December. Calculate the Machinery account balance on 2011

    Solution

     

  • Question 2
    1 / -0

    Rohan Ltd. purchased a Machinery on 1st May, 2009 for Rs.60000. On 1st July, 2010 it purchased another Machine for Rs.20000. On 31st March, 2011 it sold off the first machine purchased in 2009 for Rs.39000. Depreciation is provided at 20% on the original cost each year. Accounts are closed each year on 31st December. Calculate profit on machine

    Solution

     

  • Question 3
    1 / -0

    A machinery was purchased for Rs.180000 on 1st January, 2006. Depreciation was charged annually @ 10% on written down value method. 1/4th of this machinery was sold on 1St July, 2008 for Rs.36000.Calculate profit on sale of machinery

    Solution

     

  • Question 4
    1 / -0

    A machinery was purchased for Rs.180000 on1 st January, 2010. Depreciation was charged annually@ 10% on written down value method. 1/4th of this machinery was sold on 1St July, 2012 for Rs.36000.Calculate balance of machinery account on 31st December 2012

    Solution

     

  • Question 5
    1 / -0

    The depreciation charged on an asset will be credited to :

    Solution

    Asset account normally shows a debit balance. Every time we debit the asset account the value of the asset increases. When depreciation is charged the value of the asset decreases. Hence to reduce the value of the asset , Asset a/c is credited while charging depreciation.

  • Question 6
    1 / -0

    Depreciation is Charged on :

    Solution

    Current assets are assets which keep changing within a year of the business and are not charged with depreciation. Fixed tangible assets stay in the business for a longer period of time and the value of these assets keep reducing year after year becaue of the continuous usage of the assets. Hence depreciation is charged on the fixed tangible assets.

  • Question 7
    1 / -0

    Sakshi Ltd. purchased on 1st January, 2009 a machinery for Rs.36000 and spent Rs.4000 on its installation. On 1 st July, 2009 another machine purchased for Rs.20000. On 1 st July, 2011, machine bought on 1 s January, 2009 was sold for Rs.12000 and a new machine purchased for Rs.64000 on the same date. Depreciation is provided on 31st December @ 10% p.a. on the written down value method. Calculate loss on sale of machine

    Solution

     

  • Question 8
    1 / -0

    Provision is created by debiting :

    Solution

    Provision is a charge on the profits of the business. A portion of the profits are set aside to meet certain losses and expenses that may arise in the future. Hence a provision account is created by debiting the profit and loss account.

  • Question 9
    1 / -0

    The loss on sale of an asset is debited to:

    Solution

    Profit and loss a/c is a nominal account. All  losses are debited to the profit and loss account. Hence loss on sale of asset is debited to the  profit and loss account.

  • Question 10
    1 / -0

    Sakshi Ltd. purchased on 1st January, 2009 a machinery for Rs.36,000 and spent Rs.4,000 on its installation. On 1st July, 2009 another machine purchased for Rs.20,000. On 1st July, 2011, machine bought on 1st January, 2009 was sold for Rs.12,000 and a new machine purchased for Rs.64,000 on the same date. Depreciation is provided on 31st December @ 10% p.a. on the written down value method. Calculate balance of machinery A/c on 2011

    Solution

     

  • Question 11
    1 / -0

    Under Reducing Balance Method, depreciation to be charged :

    a. Original value
    b. Real value
    c. Scrap value


    Solution

    Reducing balance method means depreciation is charged on the written down value of the asset. Not on original value. The depreciation amount keeps changing year on year

  • Question 12
    1 / -0

    Which of the following is the example of Capital Reserve?

    Solution

    Premium received on issue of shares or debentures is a capital profit. Reserve created out of the capital profits is known as capital reserve.

  • Question 13
    1 / -0

    Depreciation is a process of :

    Solution

    Depreciation is a process of allocation of the cost of the asset to the period of its life.

  • Question 14
    1 / -0

    Asset Disposal A/c is prepared when :

    Solution

    Asset disposal account is prepared when an asset is sold. It is prepared along with Asset a/c, Provision for depreciation a/c and Depreciation a/c

  • Question 15
    1 / -0

    The cause of Depreciation is :

    a. Obsolescence
    b. Usage of Asset
    c. Wear and tear

    Solution

    Depreciation is a loss in the value of the aseet. The value of the asset keeps reducing because of the wear and tear and usage of the asset. When an asset is used for a long period of time it cannot be sold for the same value for which it was purchased. The value keeps reducing year on year due to the above reasons.

  • Question 16
    1 / -0

    Dividend Equalisation Reserve is :

    Solution

    Dividend equalisation reserve is created to maintain the same amount of dividend year on year..........even when the profits are insufficient the same amount of dividend can be maintained. This reserve is for a specific purpose...........it is a specific reserve.

  • Question 17
    1 / -0

    Shyam Ltd. purchased machinery on 1stMay, 2009 for Rs.60000. On 1st July, 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 balance of machine on 2011

    Solution

     

  • Question 18
    1 / -0

    The trial balance show the following information Creditors, bad debt-Rs.800 and sundry debtors-Rs.35000 What amount will be debited to Profit and loss account?

    Solution

    Only Bad debts is a nominal account which is a loss incurred in the normal course of the business. Creditors and sundry debtors are shown in the Balance sheet. Hence bad debts is shown in the profit and loss account.

  • Question 19
    1 / -0

    Which of the following methods of depreciation is not recognized by Income Tax Law?

    Solution

    This method is not accepted by the income tax act. Sometimes the book value of the asset becomes nil but the asset is still in use. The amount of depreciation charged is more than the written down value method.

  • Question 20
    1 / -0

    According to Companies Act, 1956 Secret Reserves can be created by:

    Solution

    Only banking and insurance companies can create secret reserves as per companies act of 1956.

  • Question 21
    1 / -0

    On October 01, 2009, a Truck was purchased for Rs.800000 by Laxmi Transport Ltd. Depreciation were provided at 15% p.a. on the diminishing balance basis on this truck. On December 31, 2012 this Truck was sold for Rs.500000. Accounts are closed on 31st March every year. Calculate profit on sale of Truck

    Solution

     

  • Question 22
    1 / -0

    General Reserves are shown in :

    Solution

    General reserves are an accumulation of the profits. It is shown in the liabilities side of the balance sheet.

  • Question 23
    1 / -0

    Calculate provision for doubtful debt from the following information Sundry debtor- Rs.95200, Further bad debts (new) Rs.11200, provision fro doubtful debt to be maintained is 10 %

    Solution

    Sundry Debtors  = 95,200

    Less: Further bad debts = 11,200

    Balance  = 84,000

    Provision for doubtful debts = 84000 * 10/100

    = 8400

  • Question 24
    1 / -0

    Which of the following is the example of Revenue Reserve?

    Solution

    Investment fluctuatuion fund is a fund created to be used to adjust the losses incurred due to the fluctuations in the price of the investments of the firm. It is a short term reserve created out of the revenue profits. Hence it is a revenue reserve.

  • Question 25
    1 / -0

    At the end of the year, Depreciation Account is transferred to :

    Solution

    Depreciation is a loss incurred by the business. It is a loss in the value of the asset. It is a nominal account. Hence it is charged to he profit and loss account of the business.

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