Deck 44: Depreciation and Reserves: Understanding the Accounting Concepts

Question 1

Depreciation is the process of:

A)Apportionment of the cost of the asset over its useful life
B)Valuation of assets
C)Maintenance of asset in a state of efficiency
D)none

Answer 1

Apportionment of the cost of the asset over its useful life

Question 2

The profit on depreciation policy is transferred to:

A)Depreciation reserve account
B)Profit and Loss Account
C)Asset account
D)none

Answer 2

Depreciation reserve account

Question 3

In case of Annuity Method, the amount of depreciation is:

A)Increasing every year
B)Fixed for all the year
C)Decreasing every year
D)none

Answer 3

Fixed for all the year

Question 4

For providing depreciation on leasehold property, the appropriate method of depreciation is:

A)Replacement Method
B)Revaluation Method
C)Fixed Installment Method
D)none

Question 5

Depletion Method of depreciation is used in:

A)Cattle, Loose tools etc.
B)Mines, Quarries etc.
C)Machinery, Building, Furniture etc.
D)none

Question 6

The interest lost on the acquisition of an asset is taken into account in calculating depreciation in:

A)Depletion Method
B)Annuity Method
C)Diminishing Balance Method
D)none

Question 7

In this method depreciation is charged on the cost of asset every year:

A)Straight Line Method
B)Written Down Value Method
C)Sum of Years digit method
D)none

Question 8

AS 6 revised is an accounting standard for:

A)Inventory Valuation
B)Depreciation Accounting
C)Revenue recognition
D)None of the above

Question 9

These reserves are created out of revenue profits of the business for a specific purpose:

A)Specific Reserves
B)General Reserves
C)Capital Reserves
D)none

Question 10

These are the reserves created only to strengthen the financial position or the business and to keep the funds available for any future contingency or expenditure that may be required:

A)Specific Reserves
B)General Reserves
C)Capital Reserves
D)none

Question 11

These reserves are created out of capital profits:

A)Specific Reserves
B)General Reserves
C)Capital Reserves
D)none

Question 12

These reserves are not shown in the balance sheet:

A)Specific Reserves
B)Capital Reserves
C)Secret reserves
D)none

Question 13

A reserve is created but its identity is merged with some other account or group of accounts so that the existence of the reserve is not known:

A)Capital reserves
B)Secret Reserves
C)Undisclosed Reserves
D)none

Question 14

The value of asset can be reduced to zero under this method ____

A)Straight line method
B)Written down value method
C)Annuity method
D)Depreciation fund method

Question 15

Provision for depreciation account appears on the _____

A)Asset side
B)Liability side
C)P & L account debit side
D)P & L account credit side

Question 16

If the asset is sold, the provision for depreciation relating to the asset sold is transferred to:

A)Asset account
B)Liability account
C)P & L account
D)Trading account

Question 17

Depreciation is charged on___

A)Continuous basis
B)Temporary basis
C)Daily basis
D)Monthly basis

Question 18

Loss of usefulness occasioned by improved production methods is known as____

A)Physical deterioration
B)Obsolescence
C)Disuse
D)Inadequacy

Question 19

Depreciation applies to___

A)Current assets
B)Wasting assets
C)Intangible assets
D)Fixed assets

Question 20

Depletion applies to____

A)Current assets.
B)Wasting assets
C)Intangible assets
D)Fixed assets

Question 21

Income tax authorities recognize this method ___

A)Straight line method.
B)Written down value method.
C)Annuity method.
D)Depreciation fund method

Question 22

Amortization applies to

A)Current assets.
B)Wasting assets.
C)Intangible assets.
D)Fixed assets

Question 23

In depreciation calculation the life of an asset is:

A)A certain figure
B)An estimate
C)A predetermined figure for all fixed assets
D)none

Question 24

Depreciable amount plus residual value of a fixed asset:

A)Depreciation expenses
B)Accumulated depreciation
C)Cost of the fixed asset
D)Future economic benefits of a fixed asset

Question 25

Cost of fixed asset minus accumulated depreciation expenses of the fixed asset:

A)Book value of a fixed asset
B)Market value of a fixed asset
C)Historical cost of a fixed asset
D)Recoverable amount of a fixed asset

Question 26

The estimate about useful life of a fixed asset:

A)Can never be changed
B)Can be changed
C)all
D)none

Question 27

XYZ has imported a machine from abroad. Which of the following is not the element of a machine's cost?

A)Purchase price of machine
B)Import duty
C)Dismantling charges
D)Refundable Tax

Question 28

Which of the following fixed asset is not depreciated in ordinary circumstances:

A)Plant and Machinery
B)Building
C)Land
D)Equipment

Question 29

In calculation of depreciation, all of the following items are actually estimates except:

A)Useful Life
B)Residual Value
C)Historical Cost
D)Salvage Value

Question 30

Depreciation means

A)Depletion
B)Amortization
C)Saving of Cash
D)Reduction in the books value of the fixed asset

Question 31

Provision for Depreciation is

A)An appropriation of profit
B)A charge against the profit
C)Accumulation of reserves
D)Writing of losses

Question 32

A machine is purchased at a cost of Rs. 5,00,000. Its useful life is 5 years with a scrap value of Rs. 50,000. It is sold for Rs. 40,000 at the end of 5 years. The profit or loss on the sale would be:

A)Profit Rs. 15,000
B)Loss Rs. 5,000
C)No Profit no Loss
D)Loss of Rs. 1,000

Question 33

Depreciation of loose tools is provided by

A)Replacement method
B)Revaluation method
C)Diminishing value method
D)Provisions for depreciation process

Question 34

Which of the following is not one of the five areas into which social accounting can be divided?

A)Environmental auditing
B)Managerial social accounting in profit oriented organisations
C)National income social accounting
D)Social auditing

Question 35

Human resource accounting attempts to place a value on:

A)The operations of the personnel department
B)The whole workforce
C)Training undertaken over a period of time
D)Recruitment processes

Question 36

Which of the following is not a reason that explains why more firms are reporting on social matters?

A)Media power
B)Increased efficiency
C)Encouragement from governments through company law
D)Consumer's views

Question 37

The amount of depreciation charged on a machinery will be debited to:

A)Machinery Account
B)Depreciation Account
C)Cash Account
D)Repair Account

Question 38

Loss on sale of machinery will be:

A)Debited on machinery A/c
B)Credited to machinery A/c
C)Credited to profit and loss A/c
D)None of them

Question 39

Which of the term is used to write off in reference to tangible fixed assets.

A)Depreciation
B)Depletion
C)Amortization
D)Both (B) and (C)

Question 40

Reduction in the book value of an asset over a period of time is called

A)Appreciation
B)Depreciation
C)Proportion
D)Depletion

Question 41

Which among the following is not a reason for depreciation?

A)Use of asset
B)Passage of time
C)Obsolescence
D)Repair of an asset

Question 42

Depreciation is charged on

A)Current asset
B)Fixed asset
C)Intangible asset
D)Current liability

Question 43

Depreciation helps in determining

A)Accurate level of profit
B)Increases the value of asset
C)Revenue generation
D)increase the burden of tax

Question 44

The asset which is an exception from depreciation is

A)Computer
B)Furniture
C)Land
D)ATM Machine

Question 45

Which of the following is true about the straight-line method?

A)Complex method
B)Cost of depreciation remains constant
C)Cost of depreciation changes every year
D)P&L account debited with different amount every year

Question 46

Annual depreciation of machine is 40000, cost of machine is 500000, rate of depreciation according to straight-line method will be

A)9%
B)18%
C)16%
D)8%

Question 47

Value of an asset is 9 lakh, scrap value is 125000, estimated life is 10 years the cost of depreciation under straight-line method will be

A)65000
B)89000
C)77500
D)67880

Question 48

Depreciation is a process of:

A)Valuation of asset
B)Allocation of cost
C)Both A& B
D)Only A

Question 49

Shares which are not preference shares are called:

A)Sweat Equity shares
B)Right Issue
C)Equity shares
D)All of above

Question 50

The amount of share premium received by the company is shown in the Balance Sheet under the heading:

A)Equity and Liabilities
B)Reserves and Surplus
C)Non-Current Assets
D)All of above

Question 51

Return of shares voluntarily by a shareholder to the company for cancellation is called:

A)Surrender of Shares
B)Forfeiture of Shares
C)Reissue of Shares
D)All of above

Question 52

A situation where a company receives applications for a smaller number of shares than offered to the public for subscription is termed as:

A)Over Subscription
B)Under Subscription
C)Normal Subscription
D)All of above

Question 53

Shares having preferential right as to dividend and repayment of capital are termed as in

A)Equity shares
B)Preference Shares
C)Right Issue
D)Issue of Bonus shares

Question 54

The amount paid as premium for an insurance policy taken for redemption of debentures is credited at the end of the accounting period to:

A)Insurance Policy Account
B)Debentures Redemption Fund Account
C)Profit and Loss Appropriation Account
D)Insurance Premium

Question 55

The balance sheet of the debentures sinking fund after redemption of debentures is credited at the end of the accounting period to:

A)Profit and Loss Account
B)General Reserve
C)Debentures Account
D)Profit and Loss Appropriation Account

Question 56

Debentures issued as Collateral Security for Rs. 10,000 will be debited to:

A)Debentures Suspense Account
B)Bank Account
C)Debentures Account
D)Collateral Security

Question 57

In case debentures of Rs. 10,000 are issued at par but payable at a premium of 10% the premium payable will be debited to:

A)Debentures Suspense Account
B)Premium on Redemption of Debentures Account
C)Loss on issue of Debentures Account
D)Suspense account

Question 58

If debentures of the nominal value of Rs. 1,00,000 are issued at discount of 10% for net assets worth Rs. 80,000, the balance of Rs. 10,000 will be debited to:

A)Goodwill Account
B)Capital Reserve Account
C)Profit & Loss Account
D)Suspense account

Question 59

A reserve created for redemption of debentures at a future date:

A)Debentures Sinking Fund
B)Debentures Redemption Reserve
C)Profit & Loss Appropriation Account
D)Suspense Account

Question 60

Which of the following statement is false?

A)A company is a legal entity quite distinct from its members.
B)A company can buy its own shares
C)A shareholder is the agent of a company
D)Same person can be agent and creditor of the company

Question 61

Which of the following are characteristics of the company?

A)Liability of the members is limited up to the face value of the shares held by them
B)It is a voluntary association of persons
C)A company is a separate body can sue and be sued its own name
D)All of the above

Question 62

Which of the company's capital is not shown in balance sheet?

A)Authorized Capital
B)Issued and Subscribed Capital
C)Called and Paid up Capital
D)Reserve Capital

Question 63

Securities Premium Account is shown on the liabilities side under the head:

A)Share Capital
B)Reserves and Surplus
C)Current Liabilities
D)Suspense account

Question 64

As per section 78 of Company's Act amount collected as premium on securities cannot be utilized for:

A)Issuing fully paid bonus shares to the members
B)Purchase of fixed assets
C)Writing off Preliminary Expenses
D)Buy Back of its own shares

Question 65

The portion of the Authorized Capital which can be called-up only on the liquidation of the Company is called:

A)Authorized Capital
B)Reserve Capital
C)Issued Capital
D)Called up Capital

Question 66

A Company can issue share at a discount if:

A)One year have been elapsed since the date at which the company was allowed to commence business
B)Share issued at a discount must belong to a class of shares already issued
C)Issue must take place within two months after the date of sanction by the court or within extended time
D)All of the above

Question 67

A new company set up by existing companies with five year track record can issue share at premium provided:

A)Participation of existing companies are not less than 50%
B)Prospectus contains justification for issue price
C)The issue price is made applicable to all new investors uniformly
D)All the above

Question 68

Debenture holders are the:

A)Owners
B)Creditors
C)Directors
D)Suppliers

Question 69

Debenture holder receive:

A)Fixed Interest
B)Dividend
C)Profit
D)None of them

Question 70

Share Capital in the balance sheet is shown under:

A)Asset
B)Liability
C)Income
D)Resource

Question 71

A private invitation to the public to purchase shares of a company is called:

A)Prospectus
B)Audit Report
C)Article of Association
D)Memorandum of Association

Question 72

A document which gives company's relationship with outside world is called:

A)Articles of Association
B)Memorandum of association
C)Prospectus
D)Statement in lieu of Prospectus

Question 73

A share of a public company is:

A)Non-refundable
B)Non-transferable
C)Transferable
D)Not allottable

Question 74

Share premium money can be used for:

A)Payment of dividend
B)Writing off Goodwill
C)Issue of fully paid bonus shares
D)none

Question 75

Discount allowed on reissue of forfeited shares is debited to:

A)Discount on issue of shares account
B)Forfeited Shares account
C)Profit & Loss Account
D)Suspense Account

Question 76

The balance of the forfeited shares account after reissue of forfeited shares account is transferred to:

A)Capital Reserve Account
B)Share Capital Account
C)Profit and Loss Account
D)Suspense Account

Question 77

If a share of Rs.10, on which Rs. 6 has been paid, is forfeited, it can be reissued at the minimum price of:

A)Rs. 6 per share
B)Rs. 4 per share
C)Rs. 10 per share
D)Rs. 16 per share

Question 78

A situation where accompany receives application for a greater number of shares than offered to the public for s7ubscription is termed as:

A)Undersubscription
B)Oversubscription
C)Normal Subscription
D)none

Question 79

A company is a person created by

A)Human beings
B)All mighty god
C)British Government
D)Law

Question 80

Transferability of share is permitted by:

A)All companies
B)Only private companies
C)All public companies
D)Only Government companies