Deck 34: Depreciation and Asset Provision

Question 1

Provision is created for -

A)Unknown Liabilities .
B)Known Liabilities .
C)Creation of Secret Reserves .
D)All the Three

Answer 1

Known Liabilities .

Question 2

Which of the following is not a method of charging depreciation

A)Straight line Method .
B)Written down value Method .
C)Discounted present value Method .
D)Sum of digits Method

Answer 2

Discounted present value Method .

Question 3

A second hand car is purchased for ` 2,00,000 and sold at ` 1,40,000 after two years. If depreciation is charged @ 10% on SLM method, find the profit or loss on sale of the car.

A)20,000 Loss .
B)20,000 Profit .
C)10,000 Loss .
D)10,000 Profit

Answer 3

20,000 Loss .

Question 4

In the above question if the depreciation is charged @10% on written down value method, find the profit or loss on sale of the Second hand car.

A)Loss of ` 20,000 .
B)Loss of ` 22,000 .
C)Loss of ` 11,000 .
D)Profit of ` 11,000

Question 5

Which of the following is true with respect to providing depreciation under diminishing balance method?

A)The amount of depreciation keeps increasing every year while the rate of depreciation keeps decreasing
B)The amount of depreciation and the rate of depreciation decrease every year
C)The amount of depreciation decreases while the rate of depreciation remains the same
D)The amount of depreciation and the rate of depreciation increases every year

Question 6

Which of the following statements best describes the purpose of depreciation?

A)Regular reduction of asset value to correspond to changes in market value as the asset ages
B)A process of correlating the market value of an asset with its gradual decline in physical efficiency
C)Allocation of cost in a manner that will ensure that Plant and Equipment items are not carried on the Balance Sheet in excess of net realizable value
D)Allocation of the cost of an asset to the periods in which services are received from the asset

Question 7

The main objective of providing depreciation is to

A)Calculate the true profit
B)Show the true financial position in the Balance Sheet
C)Provide funds for replacement of fixed assets
D)Both (a) and (b) above

Question 8

The portion of the acquisition cost of the asset yet to be allocated is known as

A)Written down value
B)Accumulated value
C)Salvage value
D)Residual Value

Question 9

Which of the following statements is true with regard to written down value method of depreciation?
i. The rate at which the asset is written off reduces year after year
ii. The amount of depreciation provided reduces from year to year
iii. The rate of depreciation as well as the amount of depreciation reduce year after year
iv. The value of the asset gets reduced to zero over a period of time

A)Only (i) above
B)Only (ii) above
C)Both (i) and (ii) above
D)(i),(ii) and (iii) above

Question 10

The accounting process of gradually converting the unexpired cost of fixed assets into expenses over a series of accounting periods is

A)Depreciation
B)Physical deterioration of the asset
C)Decrease in market value of the asset
D)Valuation of an asset at a point of time

Question 11

Which of the following factors are primarily considered to determine the economic life of an asset?

A)Passage of time, asset usage, and obsolescence
B)Tax regulations and SEBI guidelines
C)Tax regulations and asset usage
D)SEBI guidelines and Asset usage

Question 12

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

A)Straight-line method
B)Written down value method
C)Units-of-production method
D)Sum-of-the years'-digits method

Question 13

Which of the following statements is correct?

A)Depreciation cannot be provided in case of loss in a financial year
B)Depreciation is a charge against profit
C)Depreciation is provided in the books only when there is profit
D)Depreciation is an appropriation of profit

Question 14

Depreciation is calculated on the

A)Cost price of asset .
B)Market price .
C)Cost+ Transport+ Installation expenses.
D)Cost or market values whichever is less

Question 15

Which of the following is an external cause of depreciation

A)Routine repair and maintenance .
B)Misuse .
C)Obsolescence .
D)Wear and tear

Question 16

Depreciation is a process of -

A)Valuation of fixed assets .
B)Allocation of cost over the useful life of assets
C)Generating funds replacements of the assets .
D)Avoidance of tax

Question 17

Which of the following is not depreciated

A)Building .
B)Land .
C)Plant and Machinery .
D)Office equipment

Question 18

Schedule XIV of the Companies Act specifies ------ as minimum rate of depreciation (WDV) on ship fishing vessels

A)27% .
B)33% .
C)10% .
D)15%

Question 19

------ is also known as Appraisal system of depreciation

A)Inventory system .
B)Survey system .
C)Annuity system .
D)Insurance

Question 20

Bad debts recovered account will be transferred to

A)Debtor's Account
B)Profit and Loss Account
C)Provision for Doubtful Debt Account
D)Either (b )or (c) above

Question 21

The entry for creating a Provision for bad debts is

A)Debit Provision for Bad Debts A/c and credit Debtors A/c
B)Debit Debtors A/c and credit Provision for Bad Debts A/c
C)Debit Provision for Bad Debts A/c and credit Profit & Loss A/c
D)Debit Profit and Loss A/c and credit Provision for Bad Debts A/c.

Question 22

When a person purchasing goods on credit he becomes a………….. in the books of the seller-

A)Debtor .
B)Creditor .
C)Defaulter .
D)Offender

Question 23

Which of these is not a Business expense-

A)Fire Insurance of other building .
B)LIC Premium of proprietor .
C)Interest on Capital
D)Commission on sales