Commerce Accountancy

Accounting Principles and Practice

1,241 Questions

Accounting principles and practice questions cover core concepts like assets, depreciation, financial statements, and ledger adjustments. These topics are essential for commerce students preparing for academic and competitive exams. Regular practice ensures a strong grasp of standard accounting standards and business operations.

Asset depreciationFinancial statement adjustmentsAccounting standardsSingle entry systemCapital expenditure

Accounting Principles and Practice Questions

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

If the rate of depreciation is same then the amount of depreciation is same then the amount of depreciation under straight line method vis-a-vis written down value method will be:

  1. Equal in all years

  2. Equal in first year but higher in subsequent years.

  3. Equal in the first year but lower in subsequent years.

  4. Lower in the first year but equal in subsequent years.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Fixed Installment Method or Equal Installment Method or Straight Line Method or Fixed Percentage on Original Cost Method: In this method a fixed or equal amount of depreciation written off as depreciation at the end of each year, during the life time of the asset.

Written-down value can be calculated by a method of depreciation that is sometimes called the diminishing balance method. This accounting technique reduces the value of an asset by a set percentage each year.  When selling the asset, the book value is used to help determine the minimum value for which it will be sold.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Useful life of a depreciable asset should be estimated after considering certain factors. Which of the following factors is not mentioned by Accounting Standard-6 ?

  1. Expected physical wear and tear

  2. Fall in market price

  3. Obsolescence

  4. Legal or other limit on the sue of the asset
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Accounting standard 6 deals with depreciation accounting. The useful life of a depreciable  assets should be estimated after considering the following factors:

1) Expected physical wear & tear
2) Obsolescence
3) Legal or other limits on the use of asset

But the fall in market price is not mentioned in the Accounting Standard 6. 

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Method of depreciation selected __________.

  1. must be applied consistently till end of life

  2. may be changed by the enterprise whenever it wants

  3. may be changed only under special circumstance

  4. may be changed with the permission of the authorities
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Concept of consistency of accounting defines that the accounting methods used by the organization has to be consistent. Like if the depreciation is charged on written down value method, this has to followed consistently year on year basis. 

Change of method has to be done only under special circumstance.  If  due to change of method, any material change happened, this has to be notified under notes to account. 

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Complete the formula by filling the correct option in the numerator:

Rate of depreciation =  ____________________________   * 100
                                                    Acquisition cost

  1. Annual depreciation cost

  2. Cost of asset

  3. Asset - Liabilities

  4. Net Asset
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Depreciation is provided on fixed assets on account of were and tear of the asset by suing them. Depreciation is provided on assets based on the useful life of the assets.  


Depreciation rate is calculated as:

Rate of Depreciation= Annual depreciation cost  *100
                                         Acquisition cost

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

 Under Written Down Value Method depreciation is charged on ________ of the asset.

  1. Historical cost

  2. Written down value

  3. Original cost

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under the written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of fixed depreciable asset is written off during each accounting period over the expected useful life of asset. Under this method, the rate of deprecition remains constant year after year whereas the amount of depreciation goes on decreasing.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

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

  1. Machinery account

  2. Depreciation account

  3. Cash account

  4. Repair account
Reveal answer Fill a bubble to check yourself
B Correct answer
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.

Journal entry for charging depreciation is :
   Depreciation A/c       Dr. 
          To Asset/ Machinery A/c

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

The amount realised at the end of working life of an asset is known as ____________ .

  1. Residual value

  2. Market price

  3. Original cost

  4. Written down value
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In accounting, the residual value is an estimated amount that a company can acquire when they dispose off an asset at the end of its useful life

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

The books value of an asset is obtained by deducting depreciation from its __________.

  1. Market value

  2. Market + Cost price

  3. Cost

  4. Scrap value
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Book value is the value of a security or asset as entered in the firm's books. Book value is the value of an asset according to its balance sheet balances. An asset's initial book value is its acquisition cost. Every year depreciation is deducted from that value. 

So the book value of an asset is obtained by deducting depreciation from its cost price. 

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

The amount of depreciation  goes on decreasing in every year under the _____method.

  1. Fixed installment

  2. Straight line

  3. Revaluation

  4. Written down value
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Under the written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of fixed depreciable asset is written off during each accounting period over the expected useful life of asset. Under this method, the rate of deprecition remains constant year after year whereas the amount of depreciation goes on decreasing.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

In the provision method of depreciation the asset always appears at:

  1. Cost price

  2. Market Price

  3. Scrap Value

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Under provision for depreciation method of recording depreciation, depreciation is credited to the provision for depreciation account and as a result, the respective asset accout appears at its original cost.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Give journal entries:
For deducting depreciation amount from the cost of the asset.

  1. Depreciation A/c Dr.

    To Asset A/c

  2. Profit & Loss A/c Dr.

    To Depreciation A/cP

  3. Asset A/c Dr.

    To Depreciation A/c

  4. DepreciationA/c Dr.

    To Profit & Loss A/c
Reveal answer Fill a bubble to check yourself
A Correct answer
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 is a non cash expense. As per the golden rules of accounting, all expenses are related to nominal A/c and assets are related to Real A/c.
Therefore, journal entry for deducting depreciation amount from the cost of the asset is :
 Depreciation A/c     Dr.
        To Asset A/c

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Other name of straight line basis of depreciation is ___________________.

  1. Reducing depreciation

  2. Diminishing balance method

  3. Written down value method

  4. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Straight line method of depreciation - Under straight line method method, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each accounting period over the expected useful life of the asset.

Straight line method of depreciation can allso be called as fixed installment method of depreciation.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Under written down value method the annual amount of depreciation is______.

  1. Always same

  2. Goes on decling

  3. Keep on increasing

  4. None of the Above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under the written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of fixed depreciable asset is written off during each accounting period over the expected useful life of asset. Under this method, the rate of deprecition remains constant year after year whereas the amount of depreciation goes on decreasing.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Under straight line method of depreciation is charged on the basis of _________ .

  1. Market value

  2. Book value

  3. Original cost

  4. None of the Above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under the staright line method of depreciation, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each aaccounting period over the expectd useful life of the asset.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Reserve arising from capital receipts are known as_____.

  1. Capital reserve

  2. Reserve fund

  3. Secret reserve

  4. General reserve
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The term 'Reserves' refers to the profits reatined in the business not having any of the attributes of a 'provision' If however, the provision exceeds the amount which is required to meet the loss or liabilty, the excess is to be treated as reserve. In other words, Reserves means accumulated or undistributed profits.

Basically, there are two types of reserves viz. Revenue Reserves and Capital Reserves.
Revenue reserves are those reserves which are created out of profits available for distribtion by way of dividend .
Capital reserves are those reserves which are not created out of operating profit but they arise out of capital receipts.