Commerce Accountancy

Accounting Principles and Practice

1,227 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

Asset account continues to appear at its _____________ every year for entire life.

  1. Book value

  2. Written Down Value

  3. Original Cost

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

Option C is the Correct option.

Asset account continues to appear at its original cost year after year over its entire life; Depreciation is accumulated on a separate account instead of being adjusted into the asset account at the end of each accounting period.

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

Original cost of asset $800000$ 
Written down value : $500000$
Rate of depreciation : $10$%
Calculate depreciation under written down value.

  1. $50,000$
  2. $45,000$
  3. $55,000$

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

Depreciation under written down value method is calculated on the basis of written down vakue of asset.

Formula for charging depreciation under written down value method is:
Depreciation = Written doen value of assets * Rate of depreciation
Depreciation = Rs. 500000 * 10%
Depreciation = Rs.50000

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 ___________.

  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

Every assets has its estimated life of working. After the life, the asset must be disposed off. On disposal, organization may receive some amount on sale of such asset. 

The value realized at the end of working life of an asset is called residual value. 

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

Depreciation is charged on ____________ assets.

  1. Tangible fixed

  2. Current

  3. Floating

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

Depreciation is defined as the reduction in the value of  fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a loss and debited to profit & loss account. 

Following journal entry is passed for depreciation:

Depreciation A/c                              Dr.
     To  Fixed 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

By the amount of depreciation, the value of asset __________.

  1. decreases

  2. increases

  3. becomes zero

  4. remains costant
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Depreciation is defined as the reduction in the value of  fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a loss and debited to profit & loss account. 

Following journal entry is passed for depreciation:

Depreciation A/c                              Dr.
     To Asset A/c 

By the amount of depreciation, the value of fixed asset decreases. 

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

Depreciation is charged only on fixed asset.

  1. True

  2. False
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.

An analysis of definition given above highlights the characteristics of depreciation as follows:
  1. It is related to depreciable fixed assets only.
  2. It is a fall in the book value of depreciable fixed asset.
  3. It is a permanent decrease in the book value of an 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

In case there is revision in estimated useful life of a depreciable asset, the remaining unamortized amount is charged to __________.

  1. remaining useful life

  2. written off in the current year as current charges

  3. written off in the current year as prior period adjustment
  4. treated as deferred revenue expenditure to be written off in $3$ years
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In case the useful life of the asset is changed, the amortised amount should be charged to the asset over the revised remaining estimated useful life of the asset. Such a revision should be treated as change in accounting estimates.  

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

Depreciation fund method is designed to _____________________________.

  1. Only provide for depreciation of an asset

  2. Provide for depreciation and also to accumulate the amount for its replacement

  3. Provide for the payment of some liability

  4. Providing for future loss
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option b is the correct one.

in this method we will charge the depreciation every year and accumulate it for the purchasing new assets.for that accumulated depreciation we will keep as specific fund.

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 case of a particular depreciation method, the periodic depreciation is smaller than the asset's actual depreciation cost. The annual net incidence on profit and loss account remains constant due to incorporation of only fixed depreciation. The periodic depreciation is not recorded through the asset account. The depreciation method used in this case is ________________.

  1. Sinking fund method

  2. Diminishing balance method

  3. Annuity method

  4. Sum-of-years digits method
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The sinking fund method involves setting aside a fixed amount annually, which earns interest, so the periodic charge is lower than the actual depreciation 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

For using the equal installment method for depreciation the relevant formula is:

  1. Annual charge against profit $=\cfrac { Original\quad cost-Residual\quad value }{ Number\quad of\quad years\quad of\quad active\quad life } $
  2. Annual charge against profit $=\cfrac { Number\quad of\quad years\quad of\quad active\quad life }{ Original\quad cost-Residual\quad value } $
  3. Annual charge against profit $=\cfrac { Original\quad cost-Residual\quad value }{ Estimated\quad number\quad of\quad years\quad remaining } $
  4. Annual charge against profit $=\cfrac { Estimated\quad number\quad of\quad years\quad remaining }{ Original\quad cost-Residual\quad value } $
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Equal installment 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. Thus the book value of the asset will become zero or its residual value. This method is suitable for patent, furniture, short-lease etc.

The amount of depreciation may be calculated as :

Amount Charge against profit = (original cost – Residual value)/Number of years of active 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

For providing depreciation on hand tools, the appropriate method of depreciation is ___________.

  1. Replacement method

  2. Revaluation method

  3. Depletion method

  4. Annuity method
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Revaluation method.

Under revaluation method of depreciation, the assets are revalued each year. The method is normally adapted to charge depreciation on numerous inexpensive fixed assets like small tools, livestock, patents, hand tools,copy rights and other assets of such nature which are constantly changing and their period of life is most uncertain. Accordingly periodic inventory is taken of usable items and valued at cost irrespective of ruling prices. Excess of the opening over the closing inventory thus gives the periodic depreciation expenses.

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

'Depreciable amount of depreciable assets is __________.

  1. historical cost

  2. original cost

  3. historical cost less than residual value

  4. replacement cost
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The depreciable amount is defined as the historical cost of an asset minus its estimated residual (scrap) value.

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

Accumulated depreciation should be shown on the statement of financial position _____.

  1. As a deduction from current assets

  2. As part of owner's equity

  3. As a current liability

  4. As a deduction from the cost of corresponding fixed assets
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accumulated depreciation is a contra-asset account, meaning it is shown as a deduction from the gross cost of the fixed asset on the balance sheet.

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 book value of an asset is defined as ___________.

  1. cost minus salvage value

  2. cost minus accumulated depreciation

  3. cost minus salvage value minus accumulated depreciation

  4. estimated fair market value
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Book value of an asset is 'carrying' value of an asset in the balance sheet which is calculated after deducting accumulated depreciation, amortization and impairment on asset.

Salvage Value is considered for determining an estimated amount of depreciation and not the book value of the asset directly.
Fair Value of an asset is an estimated amount any buyer is willing to pay for the asset in the market (unrelated party).

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

While preparing final account, to provide depreciation which of the following adjustment entry will be passed?

Fixed Assets A/cTo Depreciation A/c Dr.
Depreciation A/cTo Profit & Loss A/c Dr.
Fixed Assets A/cTo Profit & Loss A/c Dr.
Depreciation A/cTo Fixed Assets A/c Dr.

  1. A

  2. B

  3. C

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

The standard adjustment entry for depreciation is to debit the Depreciation Expense account and credit the Accumulated Depreciation (or Fixed Asset) account.