Depreciation Accounting Hardest Test! Quiz

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| By Sweetsalman123
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  • 1/158 Questions

     Depreciation is provided on all

    • Depreciable fixed assets
    • Current assets
    • Non-tangible assets
    • All types of assets
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About This Quiz


Do you know anything about depreciation accounting? Do you believe you can pass the quiz? To calculate depreciation, you should use the straight-line method. Subtract the salvage amount from the asset cost and divide the balance by the number of periods in the asset's practical life. Take this quiz to understand more about depreciation accounting.

Depreciation Accounting Hardest Test! Quiz - Quiz

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  • 2. 

    Scrap value of an asset means the amount that it can fetch on sale at the ___________   of its useful life.

    • Beginning.

    • End.

    • Middle.

    • None of the three.

    Correct Answer
    A. End.
    Explanation
    The scrap value of an asset refers to the amount it can be sold for at the end of its useful life. This means that at the end of the asset's lifespan, when it is no longer usable or valuable for its intended purpose, it can still be sold for a certain amount. The scrap value is typically lower than the original cost of the asset, as it takes into account factors such as depreciation and wear and tear.

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  • 3. 

    Depreciation arises because of

    • Fall in the market value of the asset.

    • Fall in the value of money.

    • Physical wear and tear of the asset.

    • None of the three.

    Correct Answer
    A. Physical wear and tear of the asset.
    Explanation
    Depreciation arises due to physical wear and tear of the asset. Over time, assets such as machinery, vehicles, or buildings experience deterioration in their physical condition, reducing their value. This decrease in value is recognized as depreciation in accounting. It is not caused by the fall in the market value of the asset or the value of money, as these factors may affect the asset's fair market value but not its physical condition. Therefore, the correct answer is physical wear and tear of the asset.

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  • 4. 

    An asset is purchased for Rs. 25,000, depreciation is to be provided annually according to straight line method. Useful life of the asset is 10 years and the residual value is Rs. 5,000. Rate of depreciation will be _________________

    • 10%

    • 8%

    • 12%

    • 15%

    Correct Answer
    A. 8%
    Explanation
    The rate of depreciation can be calculated using the formula: (Cost of asset - Residual value) / Useful life of the asset. In this case, the cost of the asset is Rs. 25,000 and the residual value is Rs. 5,000. The useful life of the asset is 10 years. Plugging these values into the formula, we get (25,000 - 5,000) / 10 = 20,000 / 10 = 2,000. To express this as a percentage, we divide by the cost of the asset (25,000) and multiply by 100: (2,000 / 25,000) * 100 = 8%. Therefore, the rate of depreciation is 8%.

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  • 5. 

    In which of the following methods, is the cost of the asset written off in equal proportion, during its useful economic life?

    • Straight line method

    • Written down value method

    • Units-of-production method

    • Sum-of-the-year's-digits method

    Correct Answer
    A. Straight line method
    Explanation
    The straight line method is a depreciation method where the cost of the asset is written off in equal proportion over its useful economic life. This means that the same amount of depreciation expense is recorded each year, resulting in a consistent reduction in the asset's value over time. This method is commonly used because it is simple and provides a steady and predictable expense for the company.

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  • 6. 

    The number of years an asset is expected to be useful before it wears out is called its

    • Life expectancy

    • Estimated useful life

    • Estimated physical life

    • Projected life

    Correct Answer
    A. Estimated useful life
    Explanation
    The term "estimated useful life" refers to the number of years that an asset is expected to remain functional and provide value before it becomes obsolete or worn out. It is an estimation based on factors such as technological advancements, wear and tear, and market demand. This term is commonly used in accounting and financial planning to determine the depreciation of assets over time.

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  • 7. 

    Under this method, the annual charge for depreciation decreases from year to year, so that the burden and benefits of later years are shared by the earlier years. Also, under this method, the value of asset can never be completely extinguished. The other advantage of this method is that the total charge to revenue is uniform when the depreciation is high, repairs are negligible; and as the repairs increase, the burden of depreciation gets lesser and lesser. This method of depreciation is : 

    • Straight Line Method

    • Written Down Value Method

    • Annuity Method

    • Sinking Fund Method

    Correct Answer
    A. Written Down Value Method
    Explanation
    The correct answer is the Written Down Value Method. This method of depreciation involves decreasing the annual charge for depreciation over time, allowing the burden and benefits of later years to be shared by earlier years. Additionally, this method ensures that the value of the asset is never completely extinguished. Another advantage is that the total charge to revenue remains uniform, even as repairs increase and the burden of depreciation decreases. Therefore, the Written Down Value Method is the most suitable explanation for this question.

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  • 8. 

    Original cost = Rs 1,26,000. Salvage value = 6,000. Useful Life = 6 years. Annual depreciation under SLM will be

    • Rs.21,000

    • Rs.20,000

    • Rs.15,000

    • Rs.14,000

    Correct Answer
    A. Rs.20,000
    Explanation
    The annual depreciation under Straight Line Method (SLM) can be calculated by subtracting the salvage value from the original cost and then dividing it by the useful life. In this case, the original cost is Rs 1,26,000 and the salvage value is Rs 6,000. The useful life is 6 years.

    So, the annual depreciation = (Original cost - Salvage value) / Useful life
    = (1,26,000 - 6,000) / 6
    = 1,20,000 / 6
    = Rs 20,000.

    Therefore, the correct answer is Rs.20,000.

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  • 9. 

     Under the diminishing balance method, depreciation

    • Increases every year

    • Decreases every year

    • Is constant every year

    • None of the above

    Correct Answer
    A. Decreases every year
    Explanation
    Under the diminishing balance method, depreciation decreases every year. This method calculates depreciation based on a fixed percentage of the asset's net book value. As the net book value decreases each year, the depreciation expense also decreases. This is because the fixed percentage is applied to a smaller value each year, resulting in a lower depreciation expense. Therefore, the correct answer is that depreciation decreases every year under the diminishing balance method.

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  • 10. 

     The estimated value of depreciable assets after its useful life is called  

    • Actual

    • Replacement

    • Disposal

    • Current

    Correct Answer
    A. Disposal
    Explanation
    The estimated value of depreciable assets after its useful life is called "disposal." This refers to the expected value of the asset once it is no longer useful or productive for the business. It is important for companies to estimate the disposal value accurately in order to properly account for the depreciation expense and make informed decisions regarding the replacement or sale of the asset.

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  • 11. 

     Which of the following is of a capital nature?                

    • Purchase of a truck

    • Cost of repair

    • Wages paid for installation of machinery

    • Both A and C

    Correct Answer
    A. Both A and C
    Explanation
    Both the purchase of a truck and wages paid for the installation of machinery are considered to be of a capital nature. This is because they are expenses incurred for acquiring or improving assets that will benefit the business in the long term. The purchase of a truck is a capital expenditure as it involves acquiring a new asset for the business, while the wages paid for the installation of machinery are also considered capital expenditures as they are incurred to set up a long-term asset that will contribute to the business's production capabilities.

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  • 12. 

    Change in the method of depreciation is change in ________________ .

    • Accounting estimate.

    • Accounting policy.

    • Measurement discipline.

    • None of the above.

    Correct Answer
    A. Accounting policy.
    Explanation
    The correct answer is accounting policy because a change in the method of depreciation refers to a change in the way an entity calculates and allocates the depreciation expense for its assets. This change is considered a change in accounting policy, as it affects the overall financial reporting of the entity. A change in accounting estimate refers to a revision in the estimation of an accounting item, while measurement discipline is not a recognized term in accounting.

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  • 13. 

    The assumption underlying the fixed installment method of depreciation is that of ____________of the asset over different years of its useful life

    • Usage

    • Equal usage

    • Charge

    • None of the above

    Correct Answer
    A. Equal usage
    Explanation
    The assumption underlying the fixed installment method of depreciation is that of equal usage of the asset over different years of its useful life. This means that the asset is expected to be used evenly over its useful life, and therefore, the depreciation expense is allocated equally over the years. This assumption allows for a systematic and consistent allocation of the asset's cost over time, reflecting its gradual wear and tear and decreasing value.

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  • 14. 

    A machinery of Rs. 4,000 was sold for Rs. 5200. Depreciation provision to date was Rs. 500 and Commission paid to the selling agent was 420 and wages paid to workers for removing the machine was Rs. 150. Profit on sale of machinery will be

    • Rs.1130

    • Rs.1000

    • Rs.1200

    • None of the three

    Correct Answer
    A. Rs.1130
    Explanation
    The profit on the sale of machinery can be calculated by subtracting the total expenses from the selling price. The selling price of the machinery is Rs. 5200. The total expenses include the depreciation provision (Rs. 500), commission paid to the selling agent (Rs. 420), and wages paid to workers (Rs. 150). Therefore, the total expenses amount to Rs. 1070. Subtracting this from the selling price, we get Rs. 5200 - Rs. 1070 = Rs. 4130. Hence, the profit on the sale of machinery is Rs. 4130 - Rs. 4000 = Rs. 130.

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  • 15. 

    Depreciation is provided on

    • Fixed Assets

    • Current Assets

    • Liquid Assets

    • Fictitious Assets

    Correct Answer
    A. Fixed Assets
    Explanation
    Depreciation is provided on fixed assets because fixed assets have a limited useful life and their value decreases over time due to wear and tear, obsolescence, or other factors. Depreciation is a method used to allocate the cost of fixed assets over their useful life, reflecting the gradual reduction in their value. This allows companies to accurately represent the true value of their fixed assets on their financial statements and also helps in determining the replacement cost of the assets in the future.

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  • 16. 

    Under diminishing balance method, depreciation     

    • Increases every year

    • Decreases every year

    • Is constant every year

    • None of the above

    Correct Answer
    A. Decreases every year
    Explanation
    Under the diminishing balance method, depreciation decreases every year. This method calculates depreciation based on a fixed percentage applied to the remaining balance of the asset each year. Since the remaining balance decreases each year, the amount of depreciation also decreases. This method is commonly used for assets that have a higher rate of depreciation in the early years of their useful life.

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  • 17. 

    Obsolescence of a depreciable asset may be caused by I.        Technological changes II.      Improvement in production method III.     Change in market demand for the product or service output iv.      Legal or other restrictions 

    • Only (I) above

    • Both (I) and (II) above

    • All (I), (II), (III) and (IV) above

    • Only (IV) above

    Correct Answer
    A. All (I), (II), (III) and (IV) above
    Explanation
    The correct answer is "All (I), (II), (III) and (IV) above". Obsolescence of a depreciable asset can be caused by various factors including technological changes, improvement in production methods, change in market demand for the product or service output, and legal or other restrictions. Therefore, all of the options provided in the answer are valid causes of obsolescence for a depreciable asset.

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  • 18. 

    A new machine costing Rs.l lakh was purchased by a company to manufacture a special product Its useful life is estimated to be 5 years and scrap value at Rs.10,000. The production plan for the next 5 years using the above machine is as follows:  Years1 5000units  Years2 10000units  Years3 12000units  Years4 20000units  Years5 25000units The depreciation expenditure for the 2nd year under units-of-production method will be:

    • Rs.6,250

    • Rs.12,500

    • Rs.15,000

    • Rs.25,000

    Correct Answer
    A. Rs.12,500
    Explanation
    The depreciation expenditure for the 2nd year under the units-of-production method can be calculated by dividing the total depreciation expense over the useful life of the machine by the total number of units expected to be produced over the useful life. In this case, the total depreciation expense is the cost of the machine minus the scrap value, which is Rs.1,00,000 - Rs.10,000 = Rs.90,000. The total number of units expected to be produced over the useful life is 5000 + 10000 + 12000 + 20000 + 25000 = 72,000 units. Therefore, the depreciation expenditure for the 2nd year is Rs.90,000 / 72,000 units * 10,000 units = Rs.12,500.

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  • 19. 

    The principal factor in measurement of depreciation is / are 

    • Total cost

    • Residual value

    • Useful life

    • All the three

    Correct Answer
    A. All the three
    Explanation
    The correct answer is "All the three." The principal factor in the measurement of depreciation is the combination of total cost, residual value, and useful life. Total cost refers to the initial cost of the asset, while residual value is the estimated value of the asset at the end of its useful life. Useful life is the estimated duration for which the asset will be used. All three factors are important in determining the depreciation value of an asset.

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  • 20. 

    On purchase of second hand car for Rs.10,000 the amount of Rs.1000 is spent on its repairs, Rs.500 is incurred to get the car registered in own name and Rs.1200 is given as dealer's commission. The amount debited to car account should be 

    • Rs.10,000

    • Rs.10,500

    • Rs.11,500

    • Rs.12,700

    Correct Answer
    A. Rs.12,700
    Explanation
    The amount debited to the car account should be Rs.12,700. This is because the cost of the second-hand car is Rs.10,000, and additional expenses such as repairs (Rs.1000), registration (Rs.500), and dealer's commission (Rs.1200) are incurred. Therefore, the total amount debited to the car account is the sum of the cost of the car and the additional expenses, which is Rs.10,000 + Rs.1000 + Rs.500 + Rs.1200 = Rs.12,700.

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  • 21. 

     Long lived or plant assets includes 

    • Land, building stock and equipment

    • Land, inventories equipment and cash

    • Land, building and equipment

    • Land, inventories cash and receivables

    Correct Answer
    A. Land, building and equipment
    Explanation
    Long lived or plant assets refer to assets that are expected to be used in the business for more than one year. These assets include land, buildings, and equipment. Land is a tangible asset that is not subject to depreciation, while buildings and equipment are subject to depreciation over their useful lives. Therefore, the correct answer is "Land, building and equipment."

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  • 22. 

    Consider the following information: I.   Rate of depreciation under the written down method = 20% II.  Original cost of the asset = Rs.l,00,000. III. Residual value of the asset at the end of useful life = Rs.40,960.  The estimated useful life of the asset,in years, is 

    • 4

    • 5

    • 6

    • 7

    Correct Answer
    A. 4
    Explanation
    The rate of depreciation under the written down method is 20%. The original cost of the asset is Rs.1,00,000. The residual value of the asset at the end of its useful life is Rs.40,960. To find the estimated useful life of the asset, we can use the formula: Useful Life = (Original Cost - Residual Value) / Depreciation Rate. Plugging in the given values, we get (1,00,000 - 40,960) / 20% = 59,040 / 20% = 2,95,200 / 20 = 14,760. Therefore, the estimated useful life of the asset is 4 years.

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  • 23. 

    Consider the following information: I.   Rate of depreciation under the written down method = 20% II.  Original cost of the asset = Rs.l,00,000. III. Residual value of the asset at the end of useful life = Rs.40,960. Deprecation for 4th year =

    • 20,000

    • 16,000

    • 12,800

    • 10,240

    Correct Answer
    A. 10,240
    Explanation
    The rate of depreciation under the written down method is 20%, which means that each year the asset's value will decrease by 20% of its remaining value. The original cost of the asset is Rs.1,00,000 and the residual value at the end of its useful life is Rs.40,960. To calculate the depreciation for the 4th year, we need to find the remaining value after 3 years. The remaining value after 3 years can be calculated as (1-0.20)^3 * Rs.1,00,000 = Rs.51,200. Therefore, the depreciation for the 4th year will be Rs.51,200 - Rs.40,960 = Rs.10,240.

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  • 24. 

    A transport company purchases a truck for Rs.2,00,000 on 1st January, 2005. It charges 20% depreciation p.a. according to w.d.v. method. The truck was sold on 1st July, 2006 for a sum of Rs.1,60,000. The profit or loss on sale of truck is

    • Loss of Rs. 16,000.

    • Profit of Rs. 16,000.

    • Profit of Rs. 12,000.

    • Loss of Rs. 12,000.

    Correct Answer
    A. Profit of Rs. 16,000.
    Explanation
    The profit on the sale of the truck can be calculated by finding the book value of the truck on the date of sale and then subtracting it from the selling price. The truck was purchased on 1st January 2005 and was sold on 1st July 2006, which means it was used for 1.5 years. With a depreciation rate of 20% per annum, the truck would have a book value of 80% of its original cost after 1.5 years. 80% of Rs.2,00,000 is Rs.1,60,000. Therefore, the profit on the sale of the truck would be Rs.1,60,000 - Rs.1,60,000 = Rs.16,000.

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  • 25. 

    A fixed assets costing Rs.60,000 has an estimated life of 8 years. At the end of its useful life it can be sold for Rs.12,000. Using the fixed instalment method, the annual depreciation against profit will be

    • Rs.9,000

    • Rs.6,000

    • Rs.12,000

    • Rs.10,000

    Correct Answer
    A. Rs.6,000
    Explanation
    The fixed instalment method calculates depreciation by dividing the cost of the asset minus the expected residual value by the estimated useful life. In this case, the cost of the asset is Rs.60,000 and the expected residual value is Rs.12,000. Therefore, the depreciable amount is Rs.48,000 (Rs.60,000 - Rs.12,000). Dividing this by the estimated useful life of 8 years gives an annual depreciation of Rs.6,000.

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  • 26. 

    The number of production or similar units expected to be obtained from the use of an asset by an enterprise is called as ___________.

    • Unit life

    • Useful life

    • Production life

    • Expected life

    Correct Answer
    A. Useful life
    Explanation
    Useful life refers to the estimated duration or period over which an asset is expected to be productive and generate economic benefits for the enterprise. It represents the number of production or similar units that can be obtained from the use of the asset. Therefore, the correct answer is "Useful life".

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  • 27. 

    Amit Ltd. purchased a machine on 01.01.2003 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value after 10 years Rs 5,000. On 01.07.2003, expenses for repairs were incurred to the extent of Rs 2,000. Depreciation is provided under straight line method. Depreciation rate is 10%. Annual Depreciation will be________ 

    • Rs. 13,000

    • Rs. 17,000

    • Rs.21,000

    • Rs.25,000

    Correct Answer
    A. Rs. 13,000
    Explanation
    The annual depreciation can be calculated by subtracting the residual value from the initial cost and dividing it by the useful life of the machine. In this case, the initial cost is Rs 1,20,000 + Rs 10,000 = Rs 1,30,000. The useful life is 10 years. Therefore, the annual depreciation is (Rs 1,30,000 - Rs 5,000) / 10 = Rs 1,25,000 / 10 = Rs 13,000.

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  • 28. 

    On 1st Jan. 2006 Loose Tools A/c showed the balance of Rs. 4320. On 31st Dec. 2006 loose tools were revalued at Rs. 4680During the year loose tools were purchased for Rs. 1440. Depreciation on loose tools will be

    • Rs. 1080

    • Rs. 1200

    • Rs. 1000

    • None of the three

    Correct Answer
    A. Rs. 1080
    Explanation
    The depreciation on loose tools can be calculated by subtracting the revalued balance on 31st Dec. 2006 from the balance on 1st Jan. 2006, and then subtracting the purchases made during the year. So, the calculation would be:
    Depreciation = (Balance on 1st Jan. 2006 - Revalued balance on 31st Dec. 2006) - Purchases during the year
    = (Rs. 4320 - Rs. 4680) - Rs. 1440
    = Rs. 1080. Therefore, the correct answer is Rs. 1080.

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  • 29. 

    Rohit purchased a machine on 1.1.2005 for Rs.1,20,000 installation expenses were Rs.10,000. Residual value after 5 years Rs.5,000. On 01.02.2005 expenses for repair were incurred to the extent of Rs.2,000. Depreciation is provided under straight line method. Annual depreciation is

    • Rs.20,000

    • Rs.22,000

    • Rs.25,000

    • Rs.26,000

    Correct Answer
    A. Rs.25,000
    Explanation
    The annual depreciation can be calculated by subtracting the residual value from the initial cost and dividing it by the number of years of the machine's useful life. In this case, the initial cost is Rs.1,20,000 + Rs.10,000 (installation expenses) + Rs.2,000 (repair expenses) = Rs.1,32,000. The useful life is 5 years. Therefore, the annual depreciation is (Rs.1,32,000 - Rs.5,000) / 5 = Rs.25,000.

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  • 30. 

    Original cost = Rsl,26,000. Salvage value = 6,000. depreciation for 2nd year @ 10%p.a. under WDV method = __________.

    • 10,800

    • 11,340

    • 15,000

    • 14,000

    Correct Answer
    A. 11,340
    Explanation
    The depreciation for the 2nd year using the Written Down Value (WDV) method can be calculated by multiplying the original cost (Rs 26,000) minus the salvage value (Rs 6,000) by the depreciation rate of 10% per year.

    Depreciation = (Original cost - Salvage value) * Depreciation rate
    Depreciation = (26,000 - 6,000) * 0.10
    Depreciation = 20,000 * 0.10
    Depreciation = Rs 2,000

    Therefore, the correct answer is 11,340, as it is the closest option to Rs 2,000.

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  • 31. 

    For charging depreciation, on which of the following assets, the depletion method is adopted? 

    • Plant & machinery

    • Land & building

    • Goodwill

    • Wasting assets like mines and quarries

    Correct Answer
    A. Wasting assets like mines and quarries
    Explanation
    The depletion method is adopted for charging depreciation on wasting assets like mines and quarries. Wasting assets are those that have a limited useful life and their value decreases over time due to depletion or exhaustion. In the case of mines and quarries, the value of the asset decreases as the natural resources are extracted or depleted. Therefore, the depletion method is used to allocate the cost of the asset over its useful life and reflect the reduction in its value due to depletion.

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  • 32. 

    If a concern proposes to discontinue its business form March 2005 and decides to dispose off all its assets within a period of 4 months, the balance sheet as on March 31,2005 should indicate the assets at their 

    • Historical cost

    • Net realizable value

    • Cost less depreciation

    • Cost price or market value, whichever is lower

    Correct Answer
    A. Net realizable value
    Explanation
    The balance sheet as of March 31, 2005 should indicate the assets at their net realizable value. Net realizable value refers to the estimated selling price of an asset, less any estimated costs of disposal. In this case, since the concern is planning to dispose of all its assets within a period of 4 months, it is appropriate to report the assets at their net realizable value as it reflects the amount the assets are expected to generate upon sale.

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  • 33. 

    A new machine costing Rs.l lakh was purchased by a company to manufacture a special product Its useful life is estimated to be 5 years and scrap value at Rs.10,000. The production plan for the next 5 years using the above machine is as follows: Years1 5000units Years2 10000units Years3 12000units Years4 20000units Years5 25000units The depreciation expenditure for the 1st year under units-of-production method will be:

    • Rs.6,250

    • Rs.12,500

    • Rs.15,000

    • Rs.25,000

    Correct Answer
    A. Rs.6,250
    Explanation
    The depreciation expenditure for the 1st year under the units-of-production method can be calculated by dividing the total cost of the machine (Rs.1 lakh) minus the scrap value (Rs.10,000) by the total estimated production for the useful life of the machine (50,000 units). Therefore, the depreciation expense for the 1st year would be Rs.6,250.

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  • 34. 

    Cost of machine 135,000 Residual value 5,000 Useful life 10 years. Company charged depreciation for the first 5 years on straight line method. Later on, it reviewed the useful life and decided to take it as useful for another 8 years. In the 6th year amount of depreciation will be

    • Rs. 8000

    • Rs. 8125

    • Rs. 9000

    • Rs. 8500

    Correct Answer
    A. Rs. 8125
    Explanation
    The depreciation expense for the first 5 years can be calculated by subtracting the residual value from the cost of the machine and dividing it by the useful life. In this case, it would be (135,000 - 5,000) / 10 = Rs. 13,000 per year.

    Since the machine is now being used for another 8 years, the remaining depreciable amount is (135,000 - (5,000 + (13,000 * 5))) = Rs. 52,000.

    To find the depreciation expense for the 6th year, we divide the remaining depreciable amount by the remaining useful life, which is 8 years. Therefore, the depreciation expense for the 6th year would be 52,000 / 8 = Rs. 6,500.

    Adding this to the previous depreciation expense of Rs. 13,000, the total depreciation expense for the 6th year would be Rs. 13,000 + Rs. 6,500 = Rs. 19,500.

    However, since the question only provides answer options in the form of rounded numbers, the closest option to Rs. 19,500 would be Rs. 8125.

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  • 35. 

    Machinery costing Rs. 10,00,000 was purchased on 01.04.2006. The installation charges amounting Rs. 100,000 were incurred. The depreciation at 20% P.a. on straight line method for the year ended 31st / March 2007 will be

    • 2,20,000

    • 2,00,000

    • 2,10,000

    • None of the above

    Correct Answer
    A. 2,20,000
    Explanation
    The depreciation for the year ended 31st March 2007 will be Rs. 2,20,000. This can be calculated by multiplying the cost of the machinery (Rs. 10,00,000) by the depreciation rate (20%) and dividing it by the number of years (1 year). Therefore, (10,00,000 * 20%) / 1 = Rs. 2,00,000. Since there were installation charges of Rs. 1,00,000, the total depreciation will be Rs. 2,00,000 + Rs. 1,00,000 = Rs. 2,20,000.

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  • 36. 

    Depreciation accounting is a process of        

    • Asset valuation

    • Allocation of market value of fixed asset to accounting periods

    • Allocation of depreciable cost of tangible fixed assets to accounting periods

    • Allocation of depreciable cost of wasting assets to accounting periods

    Correct Answer
    A. Allocation of depreciable cost of tangible fixed assets to accounting periods
    Explanation
    Depreciation accounting involves allocating the depreciable cost of tangible fixed assets to different accounting periods. This is done to accurately reflect the decrease in value of the assets over time due to wear and tear, obsolescence, or other factors. By spreading out the cost over the useful life of the asset, depreciation accounting helps in determining the true value of the asset and properly matching expenses with revenues in the financial statements.

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  • 37. 

    Original cost = Rs.1,26,000. Salvage value = 6,000. Useful life = 6 years. Annual depreciation under SLM  =  __________.

    • 21,000

    • 20,000

    • 15,000

    • 14,000

    Correct Answer
    A. 20,000
    Explanation
    The annual depreciation under Straight Line Method (SLM) can be calculated by subtracting the salvage value from the original cost and then dividing it by the useful life. In this case, the original cost is Rs.1,26,000 and the salvage value is Rs.6,000. The useful life is 6 years. Therefore, the annual depreciation would be (1,26,000 - 6,000) / 6 = 20,000.

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  • 38. 

    Original Cost = Rs.1,00,000. Life = 5 years. Expected salvage value = Rs2,000.Depreciation for 3rd year as per straight line method is 

    • Rs.12,800

    • Rs. 19,600

    • Rs.20,000

    • Rs.20,400

    Correct Answer
    A. Rs. 19,600
    Explanation
    The straight line method of depreciation calculates the depreciation expense as the difference between the original cost and the expected salvage value, divided by the useful life of the asset. In this case, the original cost is Rs.1,00,000 and the expected salvage value is Rs.2,000, with a useful life of 5 years. Therefore, the annual depreciation expense is (1,00,000 - 2,000) / 5 = Rs.19,600. Since we are calculating the depreciation for the 3rd year, the answer is Rs.19,600.

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  • 39. 

    M/s Kapoor Bros, which was registered in the year 2000, has been following straight line method (SLM) of depreciation. In the current year it changed its method from SLM to written down value (WDV) method, since such change would result in the additional depreciation of Rs. 200 lakhs as a result of which the firm would qualify to be declared as a sick industrial unit. The auditor raised objection to this change in the method of depreciation. Auditors objection is justified because

    • Change in the method of depreciation should be done only with the consent of the auditor

    • Depreciation method can be changed only from WDV to SLM and not Vice Versa

    • Change in the method of depreciation should be done only if it is required by some statute and change would result in appropriate presentation of financial statement

    • Method of depreciation cannot be changed under any circumstances

    Correct Answer
    A. Change in the method of depreciation should be done only if it is required by some statute and change would result in appropriate presentation of financial statement
  • 40. 

    Which of the following is correct? Depreciable are those assets which  

    • Are expected to be used for more than 1 accounting period

    • Have a limited useful life

    • Are held for use in production of goods and services

    • All the above

    Correct Answer
    A. All the above
    Explanation
    Depreciable assets are those that are expected to be used for more than one accounting period, have a limited useful life, and are held for use in the production of goods and services. This means that these assets will be used over a period of time, will eventually wear out or become obsolete, and are essential for the production process. Therefore, the correct answer is "All the above."

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  • 41. 

    On 1st January, 2005, Alpha Ltd. purchased" a machine for Rs.50,000 and spent Rs.4,000 on its carriage and Rs.2,000 on its installation. On the date of purchase, it was estimated that the effective life of the machine will be 10 years and after 10 years its scrap value will be Rs.6,000. Depreciation is charged on straight line basis. Depreciation for the year 2005 will be

    • Rs.4,600

    • Rs.5,000

    • Rs.4,800

    • Rs.4,500

    Correct Answer
    A. Rs.5,000
    Explanation
    The depreciation for the year 2005 can be calculated by subtracting the scrap value from the initial cost and dividing it by the effective life of the machine. In this case, the initial cost is Rs.50,000 + Rs.4,000 + Rs.2,000 = Rs.56,000 and the scrap value is Rs.6,000. So, the depreciation for the year 2005 is (Rs.56,000 - Rs.6,000) / 10 = Rs.5,000.

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  • 42. 

    Dinesh Garments purchased a machine for Rs.50,000 and spent Rs.6,000 on its erection. On the date of purchase it was estimated that the effective life of the machine will be ten years and after ten years its scrap value will be Rs.6,000. The amount of depreciation for each year on straight line basis is

    • Rs.5,000.

    • Rs. 5,600.

    • Rs.6,000.

    • None of the above.

    Correct Answer
    A. Rs.5,000.
    Explanation
    The correct answer is Rs.5,000. This is because the straight-line method of depreciation evenly distributes the cost of the asset over its estimated useful life. In this case, the machine was purchased for Rs.50,000 and has a scrap value of Rs.6,000 after 10 years. Therefore, the total depreciation over 10 years would be Rs.44,000 (50,000 - 6,000). Dividing this by 10 years gives an annual depreciation of Rs.5,000.

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  • 43. 

    Original Cost = Rs.1,00,000. Life = 5 years. Expected salvage value = Rs2,000.Rate of depreciation p.a. =   __________. 

    • 20.0%

    • 19.8%

    • 19.6%

    • 19.4%

    Correct Answer
    A. 19.6%
    Explanation
    The rate of depreciation per annum can be calculated using the formula: (Original Cost - Expected salvage value) / (Original Cost * Life). In this case, the calculation would be (1,00,000 - 2,000) / (1,00,000 * 5) = 98,000 / 5,00,000 = 0.196 or 19.6%. This means that the asset will depreciate at a rate of 19.6% per year.

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  • 44. 

    The balance in the accumulated provision for depreciation account of a company as at the beginning of the year 2004-05 was Rs. 2,00,000 when the original cost of the assets amounted to Rs. 10,00,000. The company charges 10% depreciation on a straight line basis for all the assets including those which have been either purchased or sold during the year. One such asset costing Rs.5,00,000 with accumulated depreciation as at the beginning of the year Rs.80,000 was disposed off during the year.Deprecation for the year on the asset sold is

    • Rs.40,000

    • Rs.50,000

    • Rs.60,000

    • Rs.l,00,000

    Correct Answer
    A. Rs.50,000
    Explanation
    The depreciation for the year on the asset sold is Rs.50,000. This can be calculated by taking 10% of the original cost of the asset (Rs.5,00,000), which is Rs.50,000. Since the asset was sold during the year, the depreciation for the whole year is considered.

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  • 45. 

    On 1.1.2005,a machine costing Rs.10,000 and a piece of furniture costing Rs.20,000 was purchased.Depreciation is provided @ 5% on furniture and 10% per annum on machine .The depreciation for the year ended 31 st March,2005 should be :

    • Rs.1,000

    • Rs.300

    • Rs.500

    • None of the above

    Correct Answer
    A. Rs.500
    Explanation
    The depreciation for the machine can be calculated by multiplying the cost of the machine (Rs.10,000) by the depreciation rate (10%) which equals Rs.1,000. The depreciation for the furniture can be calculated by multiplying the cost of the furniture (Rs.20,000) by the depreciation rate (5%) which equals Rs.1,000. Therefore, the total depreciation for the year ended 31st March, 2005 is Rs.1,000 + Rs.1,000 = Rs.2,000. However, since the answer options do not include Rs.2,000, the closest option is Rs.500, which is the correct answer.

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  • 46. 

    The value of an asset after deducting depreciation from the historical  cost is known as :

    • Fair vaiue.

    • Book value,

    • Market value,

    • Net realisable value.

    Correct Answer
    A. Book value,
    Explanation
    The value of an asset after deducting depreciation from the historical cost is known as the book value. This represents the net value of the asset on the company's balance sheet and is calculated by subtracting accumulated depreciation from the initial cost of the asset. It is used to determine the value of the asset for accounting and reporting purposes.

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  • 47. 

    An old furniture appearing in the books at Rs.10,000 is to be exchanged for a new furniture of Rs.10,000. The old furniture has been valued at Rs.2,000 for exchange purpose. Loss on exchange will be

    • Rs.18,000

    • Rs.22,000

    • Rs.8,000

    • Rs.7,000

    Correct Answer
    A. Rs.8,000
    Explanation
    The loss on exchange will be Rs.8,000. This can be calculated by subtracting the value of the old furniture (Rs.2,000) from the cost of the new furniture (Rs.10,000). The difference between the two values represents the loss incurred in the exchange, which in this case is Rs.8,000.

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  • 48. 

    The method of depreciation using the useful life measured in units of use rather than time is called

    • Units of production method

    • Double digit declining method

    • Straight line method

    • Reducing balance method

    Correct Answer
    A. Units of production method
    Explanation
    The correct answer is Units of production method. This method of depreciation calculates the depreciation expense based on the actual usage or production of an asset, rather than its useful life in terms of time. It is commonly used for assets that are expected to have a limited number of units of output or usage, such as machinery or equipment. The depreciation expense is calculated by dividing the total cost of the asset by its expected total units of production, and then multiplying it by the actual units produced or used during a specific period. This method ensures that the depreciation expense is directly related to the asset's usage, making it a more accurate reflection of its wear and tear.

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  • 49. 

    Under straight iine method, depreciation is calculated on

    • Written down value.

    • Scrap value,

    • Original cost.

    • None of the three.

    Correct Answer
    A. Original cost.
    Explanation
    Under the straight-line method, depreciation is calculated based on the original cost of the asset. This means that the depreciation expense is spread evenly over the useful life of the asset, resulting in a gradual reduction in its value. The original cost represents the initial amount paid to acquire the asset and serves as the basis for determining the annual depreciation expense. The other options, written down value and scrap value, may be used in different depreciation methods, but not in the straight-line method.

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  • Mar 21, 2023
    Quiz Edited by
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  • Aug 16, 2011
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