### Reserve and fund - class-XI

 Description: reserve and fund Number of Questions: 88 Created by: Akash Patel Tags: accountancy elements of accounts book keeping and accountancy depreciation, provision and reserve reserve and fund depreciation accounts depreciation, provisions and reserves provisions and reserves depreciation depreciation accounting
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'Provision' is a charge against profit.

1. True

2. False

Correct Option: A
Explanation:

The term 'Provision' refers to any of t6the following amounts:

(a) The amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets; or
(b) The amount retained by way of providing for any known liability of which the amount cannot be determined with sustantial accuracy.
Provision is a charge against the profit and is required to be created irrespective of the amount of profit.

A person is entitled to take credit of input tax as self-assessed in the return and credited to Electronic credit ledger on _____________.

1. Final basis

2. Provisional basis

3. Partly Provisional and partly final basis

4. None of the above

Correct Option: B
Explanation:

what is Input Tax Credit under GST, how to calculate ITC, how to claim goods is supplied to a taxable person, the GST charged is known as Input Tax.in the return will be credited to electronic credit ledger on the provisional basis. self-assessed tax by taking credit of input available in electronic credit ledger.

State, with reasons, whether the following statement is True of False
No dividend can be declared without making provisions for reserve and depreciation.

1. True

2. False

Correct Option: A
Explanation:

Reasons:
(1) Dividend is the return on share capital from the distributable profits of the company.
(2) Based on the rate of proposed dividend company is required to transfer a certain percentage to reserves as specified.
(3) E.g. Dividend of more than 20% of paid up capital entails a minimum of 10% of net profits to be transferred to reserves.
(4) Company may decide to transfer more than the stipulated rates voluntarily.
(5) Also, depreciation has to be provided for / from current / previous years profits.
These provisions help the company to become financially sound and solid.

Bond call provision that is not practiced even after several years of issuance is classified as ______________.

1. original provision

2. deferred call

3. deferred provision

4. permanent provision

Correct Option: B
Explanation:

If the bond is called, investors are paid any accrued interest defined within the provision up to the date of recall. The investor will also receive the return of their invested principal. Also, some debt securities have a freely-callable provision. This option allows them to be called at any time.

Whether penalties under any other provisions of the Act be imposed in respect of adjudication proceedings under section 73 or 74?

1. Yes

2. No

3. At proper officer's discretion

4. None of the above

Correct Option: B
Explanation:

Section 74 deals with cases where the provisions related to If show cause notice is issued under Section 73 and thereafter the notice makes of issue of notice, no penalty shall be payable and all proceedings in respect of Ans. It is mandatory to pay amount, collected from other person representing tax under this act

Whether property of a taxable person be provisionally attached to protect the revenue?

1. Yes

2. No

3. Cannot be done

4. None of the above

Correct Option: A
Explanation:

Because  Whether Section 83 of CGST provides for provisional attachment of any property including bank account of the taxable person during the course o Provisional attachment to protect revenue in certain cases attach provisionally any property belonging to the person on whom notice is .

All arrests should be made as per the provisions of _________.

1. CRPC

2. CPC

3. FEMA

4. IPC

Correct Option: A

When can a refund claim be filed under provisions of section 142 ________________________.

1. Duty paid under the earlier law and exported prior to appointed date

2. Duty paid under the earlier law and exported after to appointed date

3. Duty paid after appointed date and exported after appointed

4. (a) and (b)

Correct Option: D
Explanation:

Whether refund of duty paid would be under provisions of  (C) Section 142(3): Every claim for refund filed by any person beforeon (D) Section 142(4): Every claim for refund filed after the appointed day for refund of any duty or tax paid under existing law in respect of the goods or services exported

B  Every claim filed by a person after the appointed day for refund of tax paid under the existing law in respect of services not provided shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary.

Provision for cash discount on debtors is a percentage of _________________.

1. Debtors

2. Net debtors

3. Net debtors less provision for doubtful debts

4. Net sales

Correct Option: C
Explanation:

Discounts allowed to the existing debtors in the next year are debited to the Provision for Discount Account and not to the Profit and loss Account.In other words, the amount of the provision for discount is calculated after deducting bad debts and provision for doubtful debts from sundry debtors.

Depreciation is a Cash expenditure like other normal expenses.

1. True

2. False

Correct Option: B

Which accounting principle is followed in adopting policy of making provision for doubtful debts @5% on debtors ?

1. Prudence

2. Substance over from

3. Materiality

4. All of these

Correct Option: A
Explanation:

The prudence principle is followed in adopting policy of making provision for doubtful debts @5% on debtors. Prudence principle or conservatism principle means all the expenses or possible losses should be recorded in advance, but incomes should not be recorded in advance.

Provision is ________________.

1. An appropriation out of profits

2. A charge against the profits

3. A reserve

4. None of these

Correct Option: B
Explanation:

A provision is an account which records a present liability of an entity. The recording of the liability in the entity's balance sheet is matched to an appropriate expense account in the entity's income statement.

As against the common belief that provisions are a charge against profit, they can as well be an appropriation out of profits as in the case of proposed dividends. Once a provision is made, the relevant loss or expenditure has to be debited to the provision account.

If the amount of any known liability cannot be determined with substantial accuracy ___________________.

1. A definite liability should be created.

2. A provision should be created.

3. A reserve should be created.

4. None of these

Correct Option: B
Explanation:

If any amount of any known liability cannot be determined with substantial accuracy. Provision is a known liability but its amount and due date and indeterminate.

It is basically setting an amount aside for a probable liability. Its a contingent loss that's recognized as a liability.

Price of the computer = Rs 50,000
Residual value = Rs 10,000
Hours worked for the year = 6000 hrs
Estimated life of computer = 20,000 hrs
Calculate the amount of depreciation.

1. Rs. 15,000

2. Rs. 12,000

3. Rs. 20,000

4. Rs. 24,000

Correct Option: B
Explanation:
Depreciation = Cost of the asset - salvage value
----------------------------------------------------   x no. of hours worked
total estimated hours
= 50,000 - 10,000
-------------------------- x 6,000
20,000
= RS-12,000.

Which of the following is not true about claiming refund of service tax under section 142?

1. Service tax is deposited under earlier law

2. Provision of service is complete under earlier law

3. Refund of service tax would be in cash

4. Refund claim should be within the time limit under section 11B(2) of the Central Excise Act, 1944

Correct Option: B

Which of the following is not a provision?

1. Provision for Depreciation

2. Provision for Discount on debtors

3. Provision for Tax

4. Provision for out standing income

Correct Option: D
Explanation:

Provision is a charge against profit, all future expenses and losses which are more probable are provided. As per accrual concept we can make provisions for expenses likely to be incurred but can only record income only after its earned.

___________ is a charge against profit.

1. Liability

3. Provision

4. Reserve

Correct Option: C,D
Explanation:

Depreciation fund is a reserve, but is a charge against profit since it is created for replacement of an asset.

Hence, both reserves and provisions can arise as a charge against profits or as an appropriation out of profit, depending upon the nature of provision or reserve.

Give journal entries:
Depreciation debited to profit and loss account

1. Machine A/c Dr.

To Bank A/c

2. Profit and Loss A/c Dr.

To Depreciation A/c

3. Depreciation A/c Dr.

To Profit and Loss A/c

4. Depreciation A/c Dr

To Machine A/c

Correct Option: B
Explanation:

As per the golden rules of accounting for nominal account all expenses and losses are debited and all income and gains are credited and for rael account, what comes in debit and what goes out is credit.

In the light of above rule, journal entry for providing depreciation and charging it to profit and losss A/c is -
1. Depreciation A/c     Dr.
To Asset A/c
(Being depreciation chargedd to asset)
2. Profit and loss A/c  Dr.
To Depreciation A/c
(Being depreciation expense transferred to P&L A/c)

Under which depreciation method :
Asset account continues to appear at its original cost year after year over its entire life.

1. Straight line

2. Weighted average

3. Provision for depreciation

4. None of the above

Correct Option: C
Explanation:

There are two method of recording depreciation -

1. By charging to asset account - Under this method of recording depreciation, depreciation is directly credited to respective asset account result of which is that respective asset account appears at its book value less depreciation till date.
2. By creating Provision for depreciation/ Accumulated depreciation Account - Under this method of recording depreciation, depreciation is credited to the provision for depreciation account and as result respective asset account appears at its original cost.

Machinery Account is debited by _________.

1. Bank account

2. Depreciation account

3. Provision account

4. None of the above

Correct Option: A
Explanation:

Machinery purchased against the payment through bank is an transaction of purchase of fixed asset. Following entry will be passed in the books of account:

Machinery A/c                             Dr.
To Bank A/c

Provisions are created for _________.

1. Uncertain income/gain

2. Uncertain expenses/losses

3. Certain expenses/losses

4. Certain income/gain

Correct Option: B
Explanation:

Provisions are created for the anticipated losses/expenses or for probable amount of liability based on certain assumption.

At the time of Disposal of Asset, what will be journal entry for provision for depreciation account?

1. Asset A/c Dr.

To Profit and Loss A/c

2. Provision for depreciation A/c Dr.

To Asset A/c

3. Asset A/c Dr.

To Provision for depreciation A/c

4. All of the above

Correct Option: B
Explanation:

When the depreciation is charged on the asset by creating the provision for depreciation account, in such case the assets are shown in the balance sheet on its original value against which provision for depreciation account is created.

If the asset is disposed off, the balance of provision for depreciation is transferred to asset account by passing the below journal entry:

Provision for Depreciation A/c               Dr.
To Asset A/c

Give journal entries:
For recording purchase of asset.

1. Asset A/c Dr.

To Bank A/c

2. Asset A/c Dr.

To Vendor A/c

3. Asset A/c Dr.

4. Both (a) and (b)

Correct Option: D
Explanation:

As per the golden rules of accounting for real account, what comes in debit and what goes out is credit.

In light of above rule, journal entry for purchase of asset should be:
1. Asset A/c     Dr.
To Bank A/c
(Being asset purchased for cash)
2. Asset A/c    Dr.
To Vendor/ creditor A/c
(Being Asset purchased on credit)

_____________ is a provision.

1. Provision for depreciation

2. Provision for taxation

3. Provision for bad and doubtful debts

4. All of the above

Correct Option: D
Explanation:

Provisions are created for the anticipated losses/expense  or for probable amount of liability based on certain assumption. Following can be stated as provision:

1) Provision for depreciation
2) Provision for taxation
3) Provision for bad & doubtful debts

Under Provision method depreciation charged is credited to _____________.

1. Provision for depreciation A/c

2. Provision for Tax A/c

3. Provision For cost A/c

4. None

Correct Option: A
Explanation:

Option A is correct.

Under provision method, assets are maintained at its original cost in the ledger account. Depreciation charged is recorded in a separate account named 'provision for depreciation account.' Also known as 'Accumulated Depreciation Account'. Journal entry to record the depreciation is as follows :-
Profit & Loss A/c Dr.
To Provision For Depreciation A/c.

Net Block ( Book Value ) = Gross Block (cost) - __________.

1. Deprecation Till date

2. Value till date

3. Expenses till date

4. None of the Above

Correct Option: A
Explanation:

Option A is correct One.

Gross Block Means - Total Value of Asset ( Its Original Purchase price+any cap ex)

Net Block Means - Original Value Of Asset( As Above) - Till Date Charged Depreciation

Normally "Accumulated depreciation account " is maintained which is credited by the depreciation charged each year on the asset of the company , Once you debit current period depreciation , such depreciation shall be transferred to Accumulated Depreciation Account.

_________ is show on Liabilities side or by way of deduction from the original cost of asset.

1. Provision for Depreciation

2. Provision for cost

3. Provision for Asset

4. None

Correct Option: A
Explanation:

Under provision for depreciation method of recording depreciation, Fixed asset is shown at its original cost on the asset side in balance sheet and depreciation till date is accumulated in provision for depreciatiion account which is shown on liabilities side in balance sheet.

When operating profit Rs. $62,400$, provision for depreciation Rs. $10,000$, Provision for taxation Rs. $30,000$, Refund of tax Rs. $400$, Provision for doubtful debts Rs. $1000$, Office of admin. expenses Rs. $50,000$ then the amount of funds from operation is__________.

1. Rs. $62,400$

2. Rs. $1,02,400$

3. Rs. $72,400$

4. Rs. $72,000$

Correct Option: C
Explanation:

Funds from operations
$=$ Operating Profit $+$ Provision for Dep,
$=$ Rs. $62,400+$ Rs. $10,000$
$=$ Rs. $72,400$.

When R.D.D is created, __________ is credited.

1. R.D.D A/c

2. Sales A/c

4. None of the above

Correct Option: A
Explanation:

R.D.D. means reserves for doubtful debts.

R.D.D. is created for the anticipated bad debts based on the historical data. The reserve is creating out of profit against which following journal entry will be passed:

Profit & Loss A/c                                      Dr.
To Reserves for Doubtful Debts.

Assets continues to show on __________ when provision for depreciation A/c is maintained.

1. Book Value

2. Original cost

3. Paid Cost

4. None

Correct Option: A
Explanation:

Under provision for depreciation method of recording depreciation, Fixed asset is shown at its original cost on the asset side in balance sheet and depreciation till date is accumulated in provision for depreciatiion account which is shown on liabilities side in balance sheet.

It must be noted that the amount of provision for expenses and loss is a charge against the revenue of the __________ year.

1. Current

2. Next

3. Previous

4. None

Correct Option: A
Explanation:
Current.
Provision is an amount set aside out of current earnings considered necessary to provide for all expenses and losses that are expected to arise out of transactions entered into, during the accounting period. Provision is made following the prudence concept of accounting which holds "provide for anticipated expense and losses but do not provide for anticipated incomes."

Provision for Doubtful debts are also called ______________.

1. Provision for Bad and Doubtful Debts

2. Provision for Losses

3. Provision for repayment

4. None

Correct Option: A
Explanation:

Option A is correct. The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. It is not provision for losses because It is for losses that business may occur but it is not confirmed yet. It is doubtful. Also it is not provision for repayment because business has to receive the amount from debtors. Provision for Doubtful debts are also known as Provision for Bad and doubtful debts.

_________ is created for the possible loss which may arise by non payment of debts by debtors.

1. Provision for Doubtful Debts

2. Provision for Discount on Debtors

4. None

Correct Option: A
Explanation:

A provision for doubtful debts is created to cover the loss of possible bad debts by means of a predetermined percentage of net debtors (i.e.., debtors less bad debts) with a view to bring in a certain element of certainty in the amount of bad debts charged for each accounting period.

__________ is accumulated in a separate account instead of being adjusted in asset account under provision method.

1. Cost

2. Depreciation

3. Expenses

4. None

Correct Option: B
Explanation:

When the depreciation is charged by creating accumulated depreciation account, following journal entry is passed:

Depreciation A/c                                 Dr.
To Accumulated Depreciation A/c

Under accumulated depreciation method, a separate account is created for accumulation of depreciation instead of being adjusted in asset a/c.

Depreciation Account is Transferred to ___________account at the end of accounting year.

2. Asset Account

3. Profit and loss

4. None

Correct Option: C
Explanation:

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence expiration of legal rights or any other cause. Depreciation does not result in cash out flow. Although, depreciation is a non cash expenditure, it is transfer to profit and loss A/c at the year end.

Depreciation is charged to ___________ account.

1. Expense

2. Profit and loss

4. None of the above

Correct Option: B
Explanation:

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence expiration of legal rights or any other cause. Depreciation does not result in cash out flow. Although, depreciation is a non cash expenditure, it is transfer to profit and loss A/c at the year end.

When separate provision for depreciation A/c is not maintained the depreciation is charged directly to __________.

1. Asset A/c credit side

2. Asset A/c Debit side

3. Liabilities side

4. None of the Above

Correct Option: A
Explanation:

When the depreciation is charged by creating accumulated depreciation account, following journal entry is passed:

Depreciation A/c                                 Dr.
To Accumulated Depreciation A/c

Under accumulated depreciation method, a separate account is created for accumulation of depreciation instead of being adjusted in asset a/c.

When separate provision for depreciation a/c is not maintained, the depreciation is charged directly to asset a/c for which following journal entry will be passed:

Depreciation A/c                              Dr.
To Assets A/c

When depreciation account is maintained annual depreciation is charged to _________.

1. Profit and loss A/c

2. Asset A/c

4. None of the Above

Correct Option: B
Explanation:

Option B is correct One.
The accumulated depreciation account is an asset account with a credit balance (also known as a contra asset account); this means that it appears on the balance sheet as a reduction from the gross amount of fixed assets reported.

When Provision for depreciation is maintain the total accumulated depreciation is only transferred to asset during its ___________.

1. Disposal

2. Purchases

3. Extension

4. None

Correct Option: A

For the year 20 X 1 and 20 X 2, the following figures have been arrived at :
Increase in notes payable =  Rs.28,000
Decrease in provision for taxes = Rs.2,500
Increase in creditors = Rs.76,500
Decrease in provision for dividends = Rs.40,000
The change in NWC (Net Working Capital) is _________________.

1. Decrease by Rs.86,000

2. Decrease by Rs.62,000

3. Decrease by Rs.11,000

4. Increase by Rs.11,000

5. Increase by Rs.62,000

Correct Option: B
Explanation:

Net working capital  = current assets - current liabilities
Increase in notes payable and increase in creditors will increase current liabilities.
Decrease in provision for taxes and dividends will increase current assets.
Thus change in net working capital = (2500 + 40000) - (28000 + 76500) = -62000
i.e. there is decrease in net working capital by Rs.62,000.

Consider the following statement:
1. According to the provisions of FEMA, $1999$, cash in the form of coins and bank notes are included in 'Currency Notes'
2. According to the FEMA's provisions, ATM cards are not included in currency.
3. All 'money orders' can be treated as 'currency'.
Which of the above statement/s is/ are not true?

1. Only $1$

2. Only $2$

3. $1$ and $3$

4. Only $3$

Correct Option: B
Explanation:

Option B is the correct one.

Currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, traveler's cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank.

Currency notes” means and includes cash in the form of coins and banknotes.

Accumulated Deprecation is _________  nature account.

1. Real

2. Personal

3. Nominal

4. None

Correct Option: A
Explanation:

Accumulated depreciation a/c is an asset account with a credit balance ( also known as contra asset a/c ) ., this means that it appears on the balance sheet as a reduction from the gross amount of fixed assets reported. So acumulated dep. a/c is a real a/c.

Depreciation is _________ nature Account.

1. Real

2. Personal

3. Nominal

4. None

Correct Option: C
Explanation:

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence expiration of legal rights or any other cause. Depreciation does not result in cash out flow. It is a non cash expenditure. As per the accounting rules, all incomes and gains and expenses and profits are included in nominal account.

Net surplus/deficiency on disposal/replacement/discarding of an asset is credited/charged to ___________.

2. Capital Reserve a/c

3. Profit and loss a/c

4. Revaluation a/c

Correct Option: C
Explanation:

Fixed assets are having its estimated working life too. Hence at the end of its working life or due to any other reasons, assets are being sold.

The net surplus/ deficiency on such sale/disposal of an asset should be credited or debited to the profit & loss account.
If the sale proceed exceeds the book value of the asset, there will be a profit which has to be credited to profit & loss account.
If the sale proceed is less than the book value of asset, there will be a loss which need to be debited to profit & loss account.

A provision is a/an ___________.

1. appropriation of profit

2. charge on the profit

3. investment

4. current asset

Correct Option: B
Explanation:

Provisions are created against the anticipated losses and the expenses which are due but not paid for.

Provisions are charge against the profit and to be debited to profit & loss account of the current year for the revenue is recognized.

___________ is/are required to be disclosed as per AS-$6$.

1. Depreciation method

2. Total cost of each class of assets.

3. Total depreciation for the period of each class of asset

4. All the three

Correct Option: D
Explanation:

The depreciation methods used, the total depreciation for the period for each class of assets, the gross amount of each class of depreciable assets and the related accumulated depreciation are disclosed in the financial statements along with the disclosure of other accounting policies. A change in the method of depreciation is treated as a change in an accounting policy and is disclosed accordingly.

The annual depreciation charge is debited to ___________.

1. concerned Assets

2. gross block a/c

3. depreciation a/c

4. profit and loss a/c

Correct Option: A
Explanation:

Annual depreciation is the amount of depreciation charged against an asset or group of assets over the course of a financial year. hence, the annual depreciation charge is debited to concerned assets a/c.

"Any amount written off or retained by way of providing for depreciation, renewals or diminution in the value of assets or retained by way of providing for any known liability" is called ____________.

1. Provisions

2. Reserve

3. Fund

4. Secret Reserve

Correct Option: A
Explanation:

The companies act 1956, States that  "Provision usually means any amount Written off or retained by the way of providing depreciation renewal or diminution in the value of assets or retained by the way of providing for any known liability of which the amount cannot be determined with substantial accuracy.

Which of the following A/c would not be transferred to profit and loss A/c?

2. Discount allowed

3. Accumulated depreciation A/c

Correct Option: C
Explanation:

Option C is the correct one.

Accumulated depreciation appears either shown as a deduction from the asset or the same may appear in the liability side of the Balance Sheet.and other two items are expenses (bad debts & Discount allowed) so it would be debited to P&L a/c and another Discount received credited to P& L account.as income for the year.

Provision is created for ________.

1. known liabilities

2. unknown liabilities

3. strengthening financial position

4. distribution of dividend

Correct Option: A
Explanation:

b"A provision is an amount set aside from a company's profit to cover an expected liability  or a decrease in the value of an asset,even though the specific amount might be unknown. A provision  is not a form of saving: instead, it is a recognition of an upcoming liability."

Which of the following statements is true in case of Joint Venture?

1. Only one venturer bears the risk.

2. Only one venturer can sell the goods.

3. Only one venturer can purchase the goods.

4. In joint venture, provisions of the Partnership Act apply

Correct Option: D
Explanation:

Option D is the correct one.
Any person competent to contract, a company, partnership firm or a corporation can enter into a Joint Venture in India. It can be in the form of partnership firm, corporation or any other business entity which the parties may choose. A Joint Venture can be formed for any lawful business purpose.

A provision should be recognized when _______________.

1. An enterprise has a present obligation as result of a past event

2. It is probable that an outflow of will be required to settle the obligation

3. A reliable estimate can be made of the amount of the obligation

4. All of the above

Correct Option: D

The entry for creating a provision for bad debts is:

1. Debit provision for bad debts a/c and Credit debtors a/c.

2. Debit debtors a/c and Credit provision for bad debts a/c.

3. Debit provision for bad debts a/c and Credit [profit and loss a/c.

4. Debit profit and loss a/c and Credit provision for bad debts a/c.

Correct Option: D
Explanation:

The provision for doubtful debts is the estimated amount of bad debts that will arise from accounts receivable that have been issued but not yet collected. It is identical to the allowance for doubtful accounts. The provision is used under accrual basis accounting, so that an expense is recognized for probable bad debts as soon as invoices are issued to customers, rather than waiting several months to find out exactly which invoices turned out to be noncollectable.

Journal entry for creating a provision for bad debts is:
Profit and loss A/c          Dr.
To Provisions for bad debts A/c

Present liability of uncertain amount, which can be measured reliably by using a substantial degree of estimation, is termed as ____________.

1. Provision

2. Liability

3. Contingent liability

4. None of these.

Correct Option: A
Explanation:
Provision is an amount set aside, by charging it to profit and loss account or statement of profit and loss, to provide for a known liability the amount of which cannot be determined with accuracy. It is charged in the profit and loss account on an estimate basis. In other words, a provision is a charge against profit for the purpose of providing any liability or loss.

1. Profit and loss account

2. Debtors account

3. Provision for bad debts account

Correct Option: C
Explanation:

The provision for bad debts might refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for doubtful accounts, or Allowance for Uncollectible Accounts. In this case, the account Provision for Bad Debts is a  contra asset account (an asset account with a credit balance). It is used along with the account Account receivable in order for the balance sheet to report the net realizable value of the accounts receivable.

Provision for bad debts is made by debiting profit and loss A/c and crediting provision for bad debts account.

A ____________ is a liability which can be measured only by using a substantial degree of estimation.

1. Provision

2. Non-current liability

3. Current liability

4. Contingent liability

Correct Option: A
Explanation:
Provision is an amount set aside, by charging it to Profit and Loss A/c or Statement of profit and loss, to provide for a known liability, the amount of which cannot be determined with accuracy. It is charged in the profit and loss account on estimate basis. In other words, a provision is a charge against profit for the purpose of providing for any liability or loss. Provision for depreciation, provision for doubtful debts, provision for repairs are few examples of provisions.

In the absence of specific provision in the partnership deed rate interest on capital of the partners would be allowed ______ .

1. 8%

2. 10%

3. 6%

4. Nil

Correct Option: D
Explanation:

Where there is neither partnership deed nor express agreementv or partnership deed is there but silent on any matter, then the relevant provisions of the Indian partnership act, 1932, would be applicale. As per these provisions no interest is to be allowed on capital.

Provision is ______________.

1. An appropriation of profits

2. A charge against the profits

3. Writing off losses

4. Charging depreciation

Correct Option: B
Explanation:

The term provision refers to any of the following amounts :

(a) The amount written off or reatined by way of providing for depreciation, renewals or diminution in value of assets; or
(b) The amount retained by way of providing  for any known liability of which the amount cannot be determined with substantial accuracy.
Provision is a charge against profit and is required to be created irrespective of the amount of profit.

Any profit or loss on the sale of sinking (depreciation) fund investment is transferred to:

1. Profit and loss account

2. Asset account

3. Sinking fund account (depreciation fund account)

4. Depreciation A/c

Correct Option: C
Explanation:

Option C is the correct one.

Under this method, the amount of depreciation charged every year is transferred to the sinking fund account. Also, the sale proceeds of the old asset and any profit or loss from the sale of investments are transferred to the Sinking Fund Account.this amount also invested in govt.securities.

The profit on depreciation policy is transferred to ________________.

1. Depreciation fund account

2. Asset account

3. Profit and loss account

4. Depreciation account

Correct Option: A
Explanation:

Sinking fund method is used when the cost of replacement of an asset is too large. Depreciation is charged every year to the profit and loss A/c. But, it may sometimes happen that the amount is not readily available at the time of purchase of the new asset.

Thus, the sinking fund method is used.Under this method, the amount of depreciation charged every year is transferred to the sinking fund account. This amount is then invested in Government securities. Also, the interest earned on these securities is reinvested.

The amount of depreciation to be charged every year is calculated after considering the element of interest. The interest will be earned on the amount which is invested every year and will remain invested till the useful life of the asset.

Loss on the sale of machinery should be written off against _______.

2. Sales Account

3. Depreciation Fund Account

4. General Reserve Account

Correct Option: C
Explanation:

According to the Diminishing Balance Method, depreciation is charged at a fixed percentage on the book value of the asset. As the book value reduces every year, it is also known as the Reducing Balance Method or Written-down Value Method.

Since the book value reduces every year, hence the amount of depreciation also reduces every year. Under this method, the value of the asset never reduces to zero.

When the amount of depreciation charged under this method and the corresponding period are plotted on a graph it results in a line moving downwards.

This method is based on the assumption that in the earlier years the cost of repairs to the assets is low and hence more amount of depreciation should be charged. Also, in the later years, the cost of repairs will increase and therefore less amount of depreciation shall be provided.

Hence, this method results in an equal burden on the profit every year during the life of the asset.

However, under this method, if the rate of depreciation applied is not appropriate it may happen that at the end of the useful life of the asset full depreciation is not provided.

Also, while applying this method, the period of use of the asset should be considered. If an asset is used only for 2 months in a year then depreciation will be charged only for 2 months.

Which of the following is a double entry for depreciation expenses?

1. Accumulated depreciation debit and depreciation expenses credit.

2. Depreciation expenses debit and accumulated depreciation credit.

3. Cash debit and depreciation expenses credit.

4. Depreciation expenses debit and cash credit.

Correct Option: B

Which of the following is the normal balance of an accumulated depreciation account?

1. Debit balance.

2. Credit balance.

3. Nil balance.

4. (A) or (B).

Correct Option: B

Accumulated Depreciation account has a _____________.

1. credit balance only

2. debit balance only

3. credit or debit balance

4. all of the above

Correct Option: A
Explanation:
Accumulated depreciation is a contra asset. Since assets have a normal debit balance, this would make accumulated depreciation have a normal credit balance. This account should be a credit balance as it is a contra-asset account.

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

1. Asset Account

2. Liability Account

3. P and L Account

Correct Option: A

An alternative term used for accumulated depreciation expenses?

1. Provision for depreciation.

2. Cumulative depreciation.

3. Targeted depreciation.

4. Depletion.

Correct Option: A

In case the depreciable assets are revalued, the provision for depreciation is based on _____________.

1. The revalued amount on the estimate of the remaining' useful life of such assets

2. Original cost of the assets

3. Depreciated value of the assets

4. $AS-6$ is silent in this regard

Correct Option: A

A machine was purchased on 1.5.2013 for Rs. $20,000$ (installation expenses Rs. $1,000$) was fully destroyed in an accident on 1.9.2015. Company provides depreciation @ $15$% p.a on reducing balance method and close accounts on 31st March each year. Which of the following journal entry is correct?

1. $\begin{matrix} Accidental\quad Loss\quad A/c & Dr.\quad 18,113 \ To\quad Machinery\quad A/c & \quad \quad \quad \quad \quad \quad \quad \quad 18,113 \end{matrix}$

2. $\begin{matrix} Accidental\quad Loss\quad A/c & Dr.\quad 15,396 \ To\quad Machinery\quad A/c & \quad \quad \quad \quad \quad \quad \quad \quad 15,396 \end{matrix}$

3. $\begin{matrix} Profit\quad and\quad Loss\quad A/c & Dr.\quad 14,434 \ Depreciation\quad A/c & Dr.\quad \quad \quad 962 \ To\quad Machinery\quad A/c & \quad \quad \quad \quad \quad \quad \quad \quad \quad 15,396 \end{matrix}$

4. $\begin{matrix} Machinery\quad A/c & Dr.\quad 14,434 \ Accidental\quad Loss\quad A/c & Dr.\quad 6,566 \ To\quad Machinery\quad A/c & \quad \quad \quad \quad \quad \quad \quad \quad \quad 21.000 \end{matrix}$

Correct Option: C

When Provision for Depreciation Account is maintained, the annual charge for depreciation shall be _________.

1. debited to Provision for Depreciation Account and credited to Profit and Loss Account

2. credited to Asset Account and debited to Profit and Loss Appropriation Account

3. debited to Asset Account and credited to Profit and Loss Appropriation Account

4. debited to Profit and Loss Account and credited to Provision for Depreciation Account

Correct Option: D

Land is also a depreciable asset.

1. True

2. False

Correct Option: B

An alternative term used for accumulated depreciation expenses?

1. Provision for depreciation

2. Cumulative depreciation

3. Targeted depreciation

4. Depletion

Correct Option: A
Explanation:

Provision for depreciation is an alternative term used for accumulated depreciation expensesDepreciation expense is recognized on the income statement as a non-cash expense that reduces the company's net income.

The book value of an asset is obtained by deducting depreciation from its:

1. Market value

2. Scrap value

3. Market + Cost price

4. Cost

Correct Option: D

What is the accumulated depreciation?

1. Sum of all depreciation expenses of a fixed asset

2. Depreciation expenses

3. Cost of depletion of assets

4. Future value of fixed asset

Correct Option: A
Explanation:

Accumulated depreciation is the total amount of a plant asset's cost that has been allocated to depreciation expense (or to manufacturing overhead) since the asset was put into service.

On a worksheet, the adjusting entry to account for depreciation of equipment consists of __________.

1. debit to Depreciation Expense and a credit to Equipment

2. debit to Depreciation Expense and a credit to Accumulated Depreciation

3. debit to Equipment and a credit to Accumulated Depreciation

4. debit to Accumulated Depreciation and a credit to Equipment

Correct Option: B
Explanation:

The basic journal entry for depreciation is to debit the Depreciation Expense account (which appears in the income statement) and credit the Accumulated Depreciation account (which appears in the balance sheet as a contra account that reduces the amount of fixed assets).

Providing depreciation is compulsory as it reflects ________.

1. true financial position

2. makes provision so that in future the replacement asset could be purchased

3. both a & b

4. none of the above

Correct Option: C

The estimated value of an asset after the expiry of its useful life is called as _______________.

1. Written Down value

3. Accumulated depreciation

4. Sales value

Correct Option: C
Explanation:

An asset can reach full depreciation when its useful life expires or if an impairment charge is incurred against the original cost, though this is less common.  The balance sheet will still reflect the original cost of the asset and the equivalent amount of accumulated depreciation.

Which  of the following is the normal balance of an accumulated depreciation account?

1. Debit balance

2. Credit balance

3. Nil balance

4. (A) or (B)

Correct Option: B
Explanation:

Credit balance is the normal balance of an accumulated depreciation account.Accumulated depreciation has a credit balance, because it aggregates the amount of depreciation expense charged against a fixed asset.

Provision for Discount on Debtors is_______________.

1. Debited to Sundry Debtors Account

2. Credited to Sundry Debtors Account

3. Debited to Bad Debts Account

4. Debited to Profit & Loss Account

Correct Option: D
Explanation:

Provision for discount on debtors is debited to profit and loss account. Provision for depreciation Discount is allowed when our debtors settle our accounts promptly. The amount of discount is an expected loss and has to be recorded in advance.

The balance in the accumulated provision for depreciation account of a company as at the beginning of the year 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 of Rs. 80,00,000 was deposited off during the year.
The balance of the accumulated depreciation account at the end of the year considering the current year's depreciation charge would be

1. Rs. 2,20,000

2. Rs. 1,70,000

3. Rs. 1,20,000

4. Rs. 2,50,000

Correct Option: B

The balance in the accumulated provision for depreciation account of a company as at the beginning of the year 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 of Rs. 80,00,000 was deposited off during the year.
Depreciation for the year is __________.

1. Rs. 40,000

2. Rs. 50,000

3. Rs. 60,000

4. Rs. 1,00,000

Correct Option: D
Explanation:
Depreciation for the year = Asset at beginning of the year x depreciation rate
= 10,00,000 x 10/100
= RS-1,00,000.

Provision is________________________.

1. An unknown liability but its amount and due date are determinate.

2. An unknown liability and its amount and due date are determinate.

3. A known liability and its amount and due date are determinate.

4. A known liability but its amount and due date are indeterminate.

Correct Option: D
Explanation:

Provision is a known liability but its amount and due date and indeterminate. It is basically setting an amount aside for a probable liability.

Its a contingent loss that's recognized as a liability.

X Ltd. acquired a lease right for 10 years of a mine on a lumpsum payment of Rs. 9,00,000 to the landlord. It was estimated by the coal deposit of the mine was 40,00,000 tonnes, 75% of which could be raised within time period allowed. X Ltd. decided to depreciate the lease on Depletion Method. The sales and stocks (in tonnes) were as under:
Year                  I                 II               III             IV               V           VI
Sales              30,000        62,000     1,96,000    4,02,000    4,02,000    3,98,000
Closing Stock  10,000       8,000        12,000     10,0000    8,000      10,000
The depreciation for the year VI will be:

1. Rs. 1,22,400

2. Rs. 1,19,400

3. Rs. 1,20,000

4. None of these

Correct Option: C

Provisions are _______.

1. Appropriation of profits

2. Charge on profits

3. Both

4. None

Correct Option: B
Explanation:

As against the common belief that provisions are a charge against profit, they can as well be an appropriation out of profits as in the case of proposed dividends. ... Once a provision is made, the relevant loss or expenditure has to be debited to the provision account.

Rate of depreciation under written down value method is 15% p.a. Cost of the machinery is Rs. 10,00,000. Residual value at the end of useful life is Rs. 20,000. Depreciation for the first year will be:

1. Rs. 1,50,000

2. Rs. 1,20,000

3. Rs. 1,00,000

4. Rs. 80,000

Correct Option: A
Explanation:
Depreciation for the 1st year = Depreciable value x rate of depreciation
= 10,00,000 x 15/100
= RS-1,50,000

Accumulated depreciation account is shown in the final accounts:

1. On the liability side of the balance sheet.

2. On the debit side of the profit and loss account.

3. By deducting from the related asset account in the balance sheet.

4. On the credit side of the profit and loss account.

Correct Option: C
Explanation:

The accumulated depreciation account is an asset account with a credit balance (also known as a contra asset account); this means that it appears on the balance sheet as a reduction from the gross amount of fixed assets reported.

Provisions relating to accounts are contained in sections ______ of the Companies Act,2013.

1. 120-134

2. 128-137

3. 205-230

4. 199-210

Correct Option: B
Explanation:

Provision relating to accounts are contained in sections 128-137 of the Companies Act, 2013.

Following is the list of section:

128 - Books of account, etc, to be kept by company
129 -  Financial statement
130 - Reopening of accounts on court's or Tribunal's orders
131 - Voluntary revision of financial statements or Board's report
132 - Constitution of National Financial Reporting Authority
133 - Central Government to prescribe accounting standards
134 - Financial statement, Board's report, etc
135 - Corporate Social Responsibility
136 - Right of member to copies of audited financial statement
137 - Copy of financial statement to be filed with Registrar

A company purchased new Machine for Rs. $50,000$ on $1$st April and spent Rs. $10,000$ on its installation and Rs. $5,000$ on transportation. The useful life of the machine is estimated $10$years. The firm provides depreciation using sum of years digit method. What is the depreciation for the last year of working life of the machine?

1. Rs. $936$

2. Rs. $1,182$

3. Rs. $1,325$

4. Rs. $1,013$

Correct Option: B
Explanation:

Depreciation expense is calculated under sum of year's digit method as:

Depreciation expense = (Remaining useful life of the asset / Sum of the year's digit) x Depreciable cost
Depreciable cost = Purchase cost + Installation cost + Transportation
Depreciable cost = Rs. 50,000 + Rs. 10,000 + Rs. 5,000 =  Rs. 65,000

Year   Deprecation base (a) Remaining life (b)  Depreciation fraction (b/sum) Depreciation expense   Book value
1  65,000  10  10/55  11,818  53,182
2   65,000  9  9/55  10,636  54,364
3   65,000  8  8/55  9,455  55,545
4   65,000  7  7/55  8,273  56,727
5   65,000  6  6/55  7,091  57,909
65,000  5  5/55  5,909  59,091
7   65,000  4  4/55  4,727  60,273
8   65,000  3  3/55  3,545  61,455
9   65,000  2  2/55  2,364  62,636
10   65,000  1  1/55  1,182  63,818
Total  55

Present liability of uncertain amount, which can be measured reliably, is termed as __________.

1. provision

2. liability

3. contingent liability

4. none of the above

Correct Option: A
Explanation:
Provision means "any amount written off or retained by way of providing for depreciation in the value of assets or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy."
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