# Depreciation Accounting Hardest Test! Quiz

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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.

• 1.

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

• A.

Unit life

• B.

Useful life

• C.

Production life

• D.

Expected life

B. 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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• 2.

### M/s ABC Brothers, which was registered in the year 2000, has been M T P3/2006 22following Straight Line Method (SLM) of depreciation. In the current year it changed its method from Straight Line 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 a'uditor raised objection to this change in the method of depreciation. The objection of the auditor is justified because

• A.

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

• B.

Depreciation method can be changed only from WDV to SLM and not vice versa

• C.

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

• D.

Method of depreciation cannot be changed under any circumstances

C. 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
Explanation
The objection of the auditor is justified because changing the method of depreciation should only be done if it is required by some statute and if the change would result in appropriate presentation of the financial statement. This ensures that the financial statements accurately reflect the financial position of the company and comply with legal requirements. Changing the method of depreciation without a valid reason could potentially misrepresent the company's financial performance and deceive stakeholders. Therefore, the auditor's objection is valid in this case.

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• 3.

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

• A.

Rs.21,000

• B.

Rs.20,000

• C.

Rs.15,000

• D.

Rs.14,000

B. 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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• 4.

### H Ltd. purchased a machinery on April 01, 2000 for Rs.3,00,000. It is estimated that the machinery will have a useful life of 5 years after which it will have no salvage value. If the company follows sum-of-the-years digits method of depreciation, the amount of depreciation charged during the year 2004-05 was

• A.

Rs. 1,00,000

• B.

Rs.80,000

• C.

Rs.60,000

• D.

Rs.20,000.

D. Rs.20,000.
Explanation
The sum-of-the-years digits method of depreciation allocates a higher amount of depreciation in the earlier years and a lower amount in the later years of an asset's useful life. This is based on the assumption that the asset is more productive and valuable in the initial years. In this case, since the machinery was purchased in 2000 and has a useful life of 5 years, the sum of the years' digits is calculated as 5 + 4 + 3 + 2 + 1 = 15. To determine the depreciation charged in 2004-05, we divide the remaining useful life (2 years) by the sum of the years' digits (15) and multiply it by the cost of the machinery (Rs.3,00,000). Therefore, the depreciation charged in 2004-05 is (2/15) * Rs.3,00,000 = Rs.40,000. However, since the machinery has no salvage value, the depreciation charged in the last year (2005-06) is adjusted to Rs.0. Therefore, the correct answer is Rs.20,000.

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• 5.

### The portion of the acquisition cost of the asset, yet to be allocated to P/L A/C  is known as   _________________.

• A.

Book value

• B.

Accumulated value

• C.

Realisable value

• D.

Salvage value

A. Book value
Explanation
The book value refers to the portion of the acquisition cost of an asset that has not yet been allocated to the profit and loss account. It represents the net value of the asset on the company's balance sheet after accounting for depreciation or amortization. This value is used to determine the asset's worth and is important for financial reporting and analysis purposes.

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• 6.

### 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________

• A.

Rs. 13,000

• B.

Rs. 17,000

• C.

Rs.21,000

• D.

Rs.25,000

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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• 7.

### In the books of D Ltd. the machinery account shows a debit balance of Rs.60,000 as on April 1,2003.The machinery was sold on September 30, 2004 for Rs.30,000. The company charges depreciation @ 20% p.a. on diminishing balance method. Profit/Loss on sale of the machinery will be

• A.

13,200 Profit

• B.

13,200 loss

• C.

6,800 profit

• D.

6,800 loss

B. 13,200 loss
Explanation
The correct answer is 13,200 loss. This is because the machinery account has a debit balance of Rs.60,000, which means that the machinery has not been fully depreciated. The machinery was sold for Rs.30,000, resulting in a loss of Rs.30,000 - Rs.60,000 = Rs.13,200.

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• 8.

### Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of years digits method will be

• A.

Rs.6,000

• B.

Rs.12,000

• C.

Rs. 18,000

• D.

Rs. 36,000

D. Rs. 36,000
• 9.

### Depreciation of fixed assets is an example of  ______________  expenditure.

• A.

Revenue

• B.

Deferred revenue,

• C.

Capital

• D.

None of the above

A. Revenue
Explanation
Depreciation of fixed assets is considered a revenue expenditure because it is a regular expense incurred by a business in order to maintain and operate its fixed assets. Revenue expenditures are expenses that are incurred in the normal course of business operations and are necessary to generate revenue. Depreciation is an ongoing expense that is deducted from the revenue generated by the fixed assets over their useful life. Therefore, it falls under the category of revenue expenditure.

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• 10.

### In ______________ method,depreciation is charged by allocating depreciable cost in proposition of the annual output to the probable life-time output.

• A.

Working hours method

• B.

Replacement method

• C.

Revaluation method

• D.

Production units method

D. Production units method
Explanation
The production units method is a depreciation method where the depreciable cost is allocated based on the proportion of the annual output to the probable lifetime output. This means that the depreciation expense is calculated by dividing the depreciable cost by the total number of units expected to be produced over the lifetime of the asset. This method is commonly used for assets whose useful life is determined by the number of units produced, such as machinery or equipment.

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• 11.

### A firm purchases a 5 years" lease for Rs, 40,000 on 1st January. It decides to write off depreciation on the Annuity method, presuming the rate of interest to be 5% per annum. The annuity for it is 0.230975. The amount of annual depreciation will be

• A.

Rs.8,000

• B.

Rs.2,000

• C.

Rs.9,239

• D.

Rs.6,000

C. Rs.9,239
Explanation
The firm purchased a 5-year lease for Rs. 40,000 and decided to write off depreciation using the Annuity method. The annuity for the lease is given as 0.230975. To calculate the annual depreciation, we need to multiply the annuity by the initial cost of the lease. Therefore, the annual depreciation will be Rs. 9,239 (0.230975 * Rs. 40,000).

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• 12.

### The balance of machine on 31st March 2006 is Rs.72,900. The machine was purchased on 1st April 2003 charging depreciation @10% p.a. by diminishing Balance method. The cost price of the machine as on 1st April 2003 would be

• A.

Rs. 1,00,000

• B.

Rs. 90,000

• C.

Rs. 81,000

• D.

Rs. 72,900

A. Rs. 1,00,000
• 13.

### 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

• A.

Rs.4,600

• B.

Rs.5,000

• C.

Rs.4,800

• D.

Rs.4,500

B. 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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• 14.

### 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

• A.

Loss of Rs. 16,000.

• B.

Profit of Rs. 16,000.

• C.

Profit of Rs. 12,000.

• D.

Loss of Rs. 12,000.

B. 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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• 15.

### A machine purchased on 1st April 2004 for Rs. 10,000 is showing a  balance of Rs. 6,000 as on 1st April 2006 when depreciation is charged on S.L.M. basis. Now, company wants to switch over to W.D.V method charging depreciation @ 20%. The amount of excess/ short depreciation of last two years will be

• A.

Excess depreciation Rs.400

• B.

Short depreciation Rs.400

• C.

Excess depreciation Rs. 1,600

• D.

Short depreciation Rs. 1,600

A. Excess depreciation Rs.400
Explanation
The excess depreciation of Rs. 400 is the correct answer because when switching from S.L.M. (Straight Line Method) to W.D.V. (Written Down Value) method, the depreciation charged under W.D.V. method is usually higher in the initial years compared to S.L.M. method. In this case, the machine was purchased for Rs. 10,000 and after 2 years of depreciation at the rate of 20% under S.L.M. method, the balance is Rs. 6,000. This means that the accumulated depreciation under S.L.M. method is Rs. 4,000. However, under W.D.V. method, the accumulated depreciation after 2 years at the rate of 20% is Rs. 4,800. Therefore, the excess depreciation is calculated as Rs. 4,800 - Rs. 4,000 = Rs. 400.

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• 16.

### Books of Ekta, shows on 1st January 2006 furniture Rs. 20,000. During the year a part of the furniture whose book value on 1st January 2006 is Rs. 1,200 has been exchanged with another furniture by paying additional Rs. 500. Ekta charge depreciation @ 10% p.a. The net amount of the ifurniture to be shown in the balance sheet will be

• A.

Rs 18,508

• B.

Rs 20,440

• C.

Rs 18,396

• D.

Rs 18,450.

D. Rs 18,450.
Explanation
The net amount of the furniture to be shown in the balance sheet will be Rs 18,450. This can be calculated by subtracting the depreciation from the original book value of Rs 20,000. The depreciation for the year is 10% of Rs 20,000, which is Rs 2,000. Then, the amount of furniture exchanged is Rs 1,200, and an additional Rs 500 is paid. So, the net decrease in the value of the furniture is Rs 1,700. Subtracting this from the original book value gives us Rs 18,300. However, since the question asks for the net amount to be shown in the balance sheet, we need to add back the additional payment of Rs 150, resulting in a net amount of Rs 18,450.

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• 17.

### Under straight iine method, depreciation is calculated on

• A.

Written down value.

• B.

Scrap value,

• C.

Original cost.

• D.

None of the three.

C. 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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• 18.

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

• A.

Beginning.

• B.

End.

• C.

Middle.

• D.

None of the three.

B. 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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• 19.

### The balance of furniture and fixtures as on 1st April, 2005 was Rs.10,000.Furniture of Rs.5,000 was purchased on 1st October, 2005. Depreciation is charged @ 10% p.a. on .W.D.V. method. The depreciation for the yearq ended 31st March, 2006 will be

• A.

Rs. 1,500.

• B.

Rs. 1,250.

• C.

Rs. 1,750.

• D.

None of the above

B. Rs. 1,250.
Explanation
The balance of furniture and fixtures as on 1st April, 2005 was Rs.10,000. Furniture of Rs.5,000 was purchased on 1st October, 2005. Depreciation is charged @ 10% p.a. on W.D.V. method. The depreciation for the year ended 31st March, 2006 will be Rs. 1,250. This can be calculated by taking the opening balance of furniture and fixtures (Rs.10,000), adding the purchases made during the year (Rs.5,000), and then applying the depreciation rate of 10% on the total (Rs.15,000). The depreciation for the year will be Rs.1,500. However, since the question specifies that the depreciation is charged on W.D.V. method, the depreciation for the year will be Rs.1,250.

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• 20.

### A Ltd. Company purchase machinery on 1st April, 2004 for Rs.1,00,000.The depreciation on this machinery is charged @ 10% per annum on straight line method. On 30th September, 2006 machinery is sold for Rs.89,000. The pfofit or loss on sale of such machinery is:

• A.

Profit of Rs.12,000.

• B.

Loss of Rs.12,000.

• C.

Profit of Rs. 14,000.

• D.

Loss of Rs.6,000.

C. Profit of Rs. 14,000.
Explanation
The profit on the sale of the machinery can be calculated by subtracting the book value of the machinery on the date of sale from the selling price. The book value is the original cost minus the accumulated depreciation. The machinery was purchased for Rs.1,00,000 and the depreciation is charged at 10% per annum on the straight-line method. From 1st April 2004 to 30th September 2006, which is a period of 2 years and 6 months, the depreciation would be 10% * 2.5 years * Rs.1,00,000 = Rs.25,000. Therefore, the book value on the date of sale would be Rs.1,00,000 - Rs.25,000 = Rs.75,000. The profit on the sale would be Rs.89,000 - Rs.75,000 = Rs.14,000.

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• 21.

### 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 :

• A.

Rs.1,000

• B.

Rs.300

• C.

Rs.500

• D.

None of the above

C. 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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• 22.

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

• A.

Fair vaiue.

• B.

Book value,

• C.

Market value,

• D.

Net realisable value.

B. 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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• 23.

### 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 :

• A.

Straight Line Method

• B.

Written Down Value Method

• C.

Annuity Method

• D.

Sinking Fund Method

B. 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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• 24.

### Depreciable amount of the machinery is Rs.11,00,000. The machine is M.T P5/2007 46 expected to produce 30 lakhs units in its 10 year life and expected distribution of production units is as follows: 1-3 year 5 lacs units each year. 4-6 year 3 lacs units each year. 7-10 year 1.5 lacs units each year. Annual depreciation for 1-3 year, using production units method will be

• A.

Rs. 1,10,000.

• B.

Rs. 55,000.

• C.

Rs. 65,000.

• D.

Rs. 1,83,333.

D. Rs. 1,83,333.
Explanation
The annual depreciation for 1-3 years using the production units method can be calculated by dividing the depreciable amount of the machinery by the expected total production units for the 10-year life of the machine.

In this case, the depreciable amount is Rs. 11,00,000 and the expected total production units are 30 lakhs.

For the first 3 years, the expected production units are 5 lakhs each year, so the total production units for these years would be 15 lakhs.

Therefore, the annual depreciation for 1-3 years would be Rs. 11,00,000 divided by 15 lakhs, which equals Rs. 1,83,333.

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• 25.

### A lease is purchased on 1st January, 2005 for 4 years at a cost of Rs1,00,000. Lease is to be depreciated by the annuity method charging 5% interest. Annuity of Re.1 over 4 years charging 5% interest is Re. 0.282012. The amount of annual depreciation will be__________________

• A.

Rs. 28,201.

• B.

Rs. 20,000.

• C.

Rs. 25,000.

• D.

None of the above.

A. Rs. 28,201.
Explanation
The question states that the lease is to be depreciated by the annuity method charging 5% interest. Annuity of Re.1 over 4 years charging 5% interest is Re. 0.282012. This means that for every Re.1 of the cost of the lease, the annual depreciation will be Re. 0.282012. Therefore, to find the amount of annual depreciation for a lease of Rs1,00,000, we can multiply the cost of the lease by the annuity factor. Rs1,00,000 multiplied by 0.282012 equals Rs. 28,201. Therefore, the correct answer is Rs. 28,201.

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• 26.

### Out of four floors of a building, ground floor is used as a store house for trading goods, first and second floor is used for office purpose and third floor is used for residential purposes. Total depreciation of a building amounts to Rs. 80,000.. The depreciation of building to be shown in the business books will be

• A.

Rs. 80,000.

• B.

Rs. 60,000.

• C.

Rs. 40,000.

• D.

Rs. 20,000.

B. Rs. 60,000.
Explanation
The depreciation of the building to be shown in the business books will be Rs. 60,000 because the ground floor, which is used as a storehouse for trading goods, is not considered for depreciation as it is not part of the office or residential purposes. Therefore, the depreciation will only be calculated for the first, second, and third floors, which amounts to Rs. 60,000.

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• 27.

### 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

• A.

Rs.5,000.

• B.

Rs. 5,600.

• C.

Rs.6,000.

• D.

None of the above.

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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• 28.

### Depreciation arises because of

• A.

Fall in the market value of the asset.

• B.

Fall in the value of money.

• C.

Physical wear and tear of the asset.

• D.

None of the three.

C. 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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• 29.

### Change in the method of depreciation is change in ________________ .

• A.

Accounting estimate.

• B.

Accounting policy.

• C.

Measurement discipline.

• D.

None of the above.

B. 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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• 30.

### A machine purchased on 1st January, 2003 at Rs.15,00,000, having useful life of 15 years was depreciated on straight line basis. On 1st January, 2006, the same machine was revalued upward by Rs.3 lacs. The amount of depreciation for the year 2006 will be

• A.

Rs. 1,25,000.

• B.

Rs. 1,00,000.

• C.

Rs. 1,20,000.

• D.

Rs. 1,50,000.

A. Rs. 1,25,000.
Explanation
The amount of depreciation for the year 2006 will be Rs. 1,25,000. This is because the machine was revalued upward by Rs. 3,00,000 on 1st January, 2006. However, the useful life of the machine remains the same at 15 years. Therefore, the remaining useful life of the machine after the revaluation is 12 years. To calculate the depreciation for the year 2006, we divide the upward revaluation amount by the remaining useful life, which is Rs. 3,00,000 divided by 12, resulting in Rs. 1,25,000.

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• 31.

### A machine purchased on 1.4.2003 for Rs.10,00,000 was depreciated on straight line basis over its useful life of 10 years. On 1.4.2005, it was found that machine is in a good condition and will be used in the production for 10years. the amount of depreciated for the year ending 31.3.2006 will be

• A.

Rs.1,00,000.

• B.

Rs.80,000.

• C.

Rs.83,333.

• D.

Rs.66,667.

B. Rs.80,000.
Explanation
The machine was purchased on 1.4.2003 and has a useful life of 10 years, which means it will be used until 1.4.2013. On 1.4.2005, it was found to be in good condition and will still be used for 10 more years, until 1.4.2015. The depreciation for the year ending 31.3.2006 will be calculated based on the remaining useful life of the machine, which is 9 years. Therefore, the depreciation for that year will be Rs.80,000.

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• 32.

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

• A.

Usage

• B.

Equal usage

• C.

Charge

• D.

None of the above

B. 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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• 33.

### Machinery costing Rs.10,00,000 was purchased on 1.4.2006. The installation charges amounting Rs.1,00,000 were incurred. The depreciation at 10% per annum on straight line method for the year ended 31st March, 2007 will be

• A.

Rs. 1,00,000

• B.

Rs. 2,00,000

• C.

Rs. 1,10,000

• D.

None of the above

C. Rs. 1,10,000
Explanation
The depreciation on the machinery is calculated based on the cost of the machinery and the useful life of the machinery. In this case, the cost of the machinery is Rs.10,00,000 and the useful life is not given. However, since the depreciation is calculated on a straight-line method, it can be assumed that the useful life is 10 years. Therefore, the annual depreciation would be Rs.1,00,000 (10% of Rs.10,00,000). However, since the machinery was purchased on 1.4.2006, the depreciation for the year ended 31st March, 2007 would only be for 11 months. Hence, the depreciation for that period would be Rs.1,10,000 (Rs.1,00,000 * 11/12). Therefore, the correct answer is Rs. 1,10,000.

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• 34.

### The plant and machinery account of a firm had a debit balance of Rs. 1,47,390 on Jan. 1, 2006. It has purchased on Jan 1, 2003. Firm has been following the practice of charging full years depreciation every year on diminishing balance system @ 15%. Cost of machinery on 1.1.2003 will be _________.

• A.

Rs. 240,000

• B.

Rs. 250,000

• C.

Rs. 200,000

• D.

Rs. 260,000

A. Rs. 240,000
Explanation
The cost of machinery on January 1, 2003, can be calculated by working backwards from the debit balance on January 1, 2006. Since the firm charges full years depreciation every year on diminishing balance system at a rate of 15%, we can determine the original cost of the machinery by dividing the debit balance by (1 - depreciation rate). In this case, the original cost would be 1,47,390 / (1 - 0.15) = Rs. 240,000.

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• 35.

### A company purchased plant for Rs. 5,000. The useful lite of the plant is 10 years and the turnover value is Rs. 500. When the management wants to depreciate it by Straight line method. Rate of depreciation will be ________

• A.

8%

• B.

9%

• C.

10%

• D.

None of the three

B. 9%
Explanation
The rate of depreciation will be 9%. This can be calculated by dividing the cost of the plant (Rs. 5,000) by the useful life of the plant (10 years), which gives us an annual depreciation of Rs. 500. To find the rate of depreciation, we divide the annual depreciation by the turnover value (Rs. 500), which gives us 9%.

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• 36.

### A machinery of Rs. 3,000 was sold for Rs. 4200. Depreciation provision to date was Rs. 400 and commission paid to the selling agent was Rs. 420 and wages paid to the workers for removing the machine was Rs. 30. Profit on sale of machinery will be   ____________

• A.

Rs.1200

• B.

Rs.1000

• C.

Rs.1150

• D.

None of the three

C. Rs.1150
Explanation
The profit on the sale of machinery can be calculated by subtracting the total expenses from the selling price. In this case, the selling price is Rs. 4200. The total expenses include the depreciation provision (Rs. 400), commission paid to the selling agent (Rs. 420), and wages paid to the workers (Rs. 30). Therefore, the profit on the sale of machinery is Rs. 4200 - Rs. 400 - Rs. 420 - Rs. 30 = Rs. 3350. However, since the question asks for the profit, the correct answer is Rs. 1150.

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• 37.

### Under annuity method, interest is calculated on

• A.

Original cost

• B.

Scrap value,

• C.

Written down value

• D.

None of the three

C. Written down value
Explanation
In the annuity method, interest is calculated based on the written down value. The written down value refers to the remaining value of an asset after deducting its depreciation. This method is commonly used to calculate the interest or return on investment for assets that have a decreasing value over time. It allows for a more accurate assessment of the asset's profitability and helps in determining the appropriate amount of interest to be charged or earned.

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• 38.

### A trader purchased furniture on Jan 1, 2004 for Rs. 5,200. Its scrap value is 200 and life 10 years. Depreciate furniture according to fixed instalment method. Balance of furniture a/c at the end of third year will be

• A.

Rs.3,500

• B.

Rs.3,700

• C.

Rs.4,000

• D.

Rs.3,400

B. Rs.3,700
Explanation
The fixed installment method of depreciation assumes that the asset depreciates by the same amount each year. In this case, the furniture was purchased for Rs. 5,200 and has a scrap value of Rs. 200. The total depreciation over its 10-year life would be Rs. 5,000 (5,200 - 200). Therefore, the annual depreciation would be Rs. 500 (5,000 / 10). After three years, the accumulated depreciation would be Rs. 1,500 (3 years x Rs. 500/year). Therefore, the balance of the furniture account at the end of the third year would be Rs. 3,700 (5,200 - 1,500).

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• 39.

### A seven years lease has been purchased for a sum of Rs. 60,000 and it is proposed to depreciate it under annuity method charging 4% interest. In Reference to annuity table, Rs. 9996.55 should be charged to depreciation A/c. Balance of lease A/c at the end of the 1st year will be

• A.

Rs. 52,403.45

• B.

Rs. 52,000

• C.

Rs. 50,000

• D.

None of the above

A. Rs. 52,403.45
Explanation
The annuity method of depreciation involves charging a fixed amount each year to the depreciation account. In this case, according to the annuity table, the amount to be charged to the depreciation account is Rs. 9996.55. Therefore, at the end of the 1st year, the balance of the lease account will be the initial amount of Rs. 60,000 minus the depreciation charged of Rs. 9996.55, which equals Rs. 50,003.45. However, since the question asks for the balance of the lease account, the answer would be the remaining amount after deducting the depreciation from the initial amount, which is Rs. 52,403.45.

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• 40.

### In Jan, 2004, A trader purchased Furniture for Rs.10,000, Depreciation is charged @ 25% p.a. Diminishing balance. At the end of the third year, it  was sold for Rs.1000. Profit or Loss on sale will be

• A.

Profit Rs.2400

• B.

Profit Rs.2300

• C.

Loss Rs.2406

• D.

Loss Rs.3219

D. Loss Rs.3219
Explanation
The correct answer is Loss Rs.3219. This can be calculated by finding the value of the furniture at the end of the third year using the diminishing balance method. The value of the furniture after 3 years can be calculated as follows:
Value = Purchase Price * (1 - Depreciation Rate)^Number of Years
Value = 10000 * (1 - 0.25)^3
Value = 10000 * (0.75)^3
Value = 10000 * 0.421875
Value = 4218.75
Since the furniture was sold for Rs.1000, the loss on sale can be calculated as:
Loss = Value - Selling Price
Loss = 4218.75 - 1000
Loss = Rs.3218.75
Therefore, the correct answer is Loss Rs.3219.

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• 41.

### Depreciation as 5% on office furniture of Rs. 8,000; at 10% on plant and  55 machinery of Rs. 80,000; at 5% on factory building of Rs. 2,00,000 have been charged by the entrepreneur during the year. Total amount of depreciation will be

• A.

Rs. 18,400

• B.

Rs.18,000

• C.

Rs.15,000

• D.

None of the three

A. Rs. 18,400
Explanation
The correct answer is Rs. 18,400. The total amount of depreciation can be calculated by multiplying the respective depreciation rates with the initial values of the assets and summing them up. For office furniture, the depreciation is 5% of Rs. 8,000, which is Rs. 400. For plant and machinery, the depreciation is 10% of Rs. 80,000, which is Rs. 8,000. For factory building, the depreciation is 5% of Rs. 2,00,000, which is Rs. 10,000. Adding these amounts together gives us a total depreciation of Rs. 18,400.

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• 42.

### Under the diminishing balance method, depreciation

• A.

Increases every year

• B.

Decreases every year

• C.

Is constant every year

• D.

None of the above

B. 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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• 43.

### Depreciation on motor car, whose cost is Rs. 58,000 with an accumulated Depreciation reserve of Rs.11,600 at 20% p.a. on diminishing balence will be

• A.

Rs.9000

• B.

Rs.9280

• C.

Rs.10000

• D.

None of the three

B. Rs.9280
Explanation
The correct answer is Rs.9280. Depreciation is calculated as a percentage of the diminishing balance of the asset. In this case, the motor car has a cost of Rs. 58,000 and an accumulated depreciation reserve of Rs. 11,600. The remaining balance of the motor car is Rs. 46,400 (Rs. 58,000 - Rs. 11,600). The depreciation for the year is then calculated as 20% of Rs. 46,400, which is Rs. 9,280. Therefore, the depreciation on the motor car is Rs. 9,280.

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• 44.

### Depletion method of depreciation is used in ______________

• A.

Cattle,loose tools etc.

• B.

Mines and quarries

• C.

Machinery and building

• D.

None of these

B. Mines and quarries
Explanation
The depletion method of depreciation is used in mines and quarries. This method is specifically designed to account for the gradual exhaustion of natural resources, such as minerals or oil, which are extracted from these types of assets. As the resources are extracted, the value of the mine or quarry decreases, and the depletion method allows for the gradual allocation of this decrease in value as an expense over time. This helps to accurately reflect the reduction in the asset's value due to the extraction of the natural resources.

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• 45.

### 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 _________________

• A.

10%

• B.

8%

• C.

12%

• D.

15%

B. 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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• 46.

### 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

• A.

Rs. 8000

• B.

Rs. 8125

• C.

Rs. 9000

• D.

Rs. 8500

B. 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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• 47.

### 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

• A.

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

• B.

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

• C.

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

• D.

Method of depreciation cannot be changed under any circumstances

C. 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
• 48.

### A company purchased machinery for Rs. 20,000 on 1st January 2003 and followed the diminishing balance method @ 15%. At the end of 2006 it was decided to follow fixed Instalment method of depreciating the machine at Rs. 3000 per year from the very beginning and the necessary amount of unabsorbed depreciation of 2003 to 2005 to be adjusted in 2006. Adjusted amount will be

• A.

1282

• B.

1300

• C.

1400

• D.

1500

A. 1282
Explanation
The adjusted amount will be 1282. This can be calculated by first finding the depreciation for each year using the diminishing balance method. The depreciation for each year is calculated by multiplying the previous year's book value by the depreciation rate. The book value is the original cost minus the accumulated depreciation. After finding the depreciation for each year, we can subtract the total depreciation from the original cost to find the book value at the end of 2006. Finally, we can subtract the book value at the end of 2006 from the original cost to find the unabsorbed depreciation. The unabsorbed depreciation is then adjusted in 2006, resulting in an adjusted amount of 1282.

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• 49.

### Machinery bought on 1st July 2004 for Rs. 20,000 was sold on Dec. 31, 2007 for Rs. 15,000. Depreciation is charged @ 10% p.a. original cost. Accounting year closes on 31st Dec. each year, profit on sale will be

• A.

3,000

• B.

2,000

• C.

2,500

• D.

4,000

B. 2,000
Explanation
The profit on the sale of the machinery can be calculated by subtracting the original cost of the machinery from the selling price. The original cost of the machinery can be calculated by applying the depreciation rate of 10% per year for the period from 1st July 2004 to 31st December 2007. This period is 3.5 years. Therefore, the depreciation amount is 20,000 * 10% * 3.5 = 7,000. The original cost of the machinery is 20,000 - 7,000 = 13,000. The profit on the sale is 15,000 - 13,000 = 2,000.

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• 50.

### A boiler was purchased from abroad for Rs. 10,000, shipping and forwarding charges amounted to Rs. 2000, Import duty Rs. 7000 and expenses of installation amounted to Rs. 1000. It was depreciated for three years @ 10% on diminishing balance method Balance of machinery A/c at the end of third year will be

• A.

14,580

• B.

15,000

• C.

14,000

• D.

15,500

A. 14,580
Explanation
The balance of the machinery account at the end of the third year will be 14,580. This can be calculated by subtracting the depreciation for each year from the initial cost of the boiler. The initial cost of the boiler is Rs. 10,000. The depreciation for the first year is 10% of Rs. 10,000, which is Rs. 1,000. So, the balance at the end of the first year is Rs. 9,000. The depreciation for the second year is 10% of Rs. 9,000, which is Rs. 900. So, the balance at the end of the second year is Rs. 8,100. The depreciation for the third year is 10% of Rs. 8,100, which is Rs. 810. So, the balance at the end of the third year is Rs. 7,290. Adding the shipping and forwarding charges, import duty, and installation expenses to this balance gives us Rs. 14,580.

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• Mar 21, 2023
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• Aug 16, 2011
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