Accounting Principles and Practice

Wear and tear is a popular and legal term for depreciation. Wear and tear is the decrease in value of an item due to deterioration through normal use rather than through accident or negligence.

A risk is simply the possibility of a loss. Thus, Chance of loss is referred to as Risk.

In case of motor insurance, the sum insured is the insured's declared value [IDV]. It is the value of the vehicle, which is found by adjusting the current manufacturer's listed selling price of the vehicle with depreciation percentage as prescribed in the IRDA regulations. Manufacturer's listed selling price will include local duties / taxes, excluding registration and insurance.

Section 13 of IRDA, 1999 deals with TRANSFER OF ASSETS, LIABILITIES, ETC., OF INTERIM INSURANCE REGULATORY AUTHORITY.

A rebate is a deduction from the quoted price that is returned to the customer after the purchase is complete. Unlike a discount (applied at purchase), a rebate involves the buyer paying full price first, then receiving a partial refund later. This differs from general offers or bonanzas which are promotional tactics.

Current Ratio = Current Assets / Current Liabilities. This liquidity ratio measures a company's ability to pay short-term obligations. A ratio above 2:1 is generally considered healthy, below 1:1 indicates potential liquidity problems. Option A inverts the calculation, B uses long-term liabilities, and C incorrectly uses capital assets (fixed assets).

 In this system, continuous  record of receipt and issue of materials is maintained by the stores department and the information about the stock material is always available. 

 Imputed cost is the cost which are considered only for the purpose of decision making and performance evaluation. In interest on capital no actual cash payment is made, but the concept is that had the funds been invested elsewhere they would have earned interest.

Liability is the value which need to discharge in the required time, i.e. TDS is a liability to submit into the account of government.

AS-26 is associated with Intangible Assets.

The formula for calculation of depreciation is (Cost - Scrap Value) / Life of Asset. The scrap value recovered after use of asset, so we need to deduct the net value to find the value of depreciation.

 As per the Matching concept, Revenue - expenses = Profit

 The scrap is the residue material that has a recovery value, it can be sold.

All of the above are PV methods.

The Diminishing Value (or Declining Balance) method calculates depreciation as a percentage of the remaining book value each year. Since depreciation is always a percentage of a diminishing balance, the asset value approaches but never reaches zero - the depreciation amount gets progressively smaller each year.