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

At the balance sheet date the balance on the Accumulated Provision for Depreciation Account is __________.

  1. transferred to Depreciation Account

  2. transferred to the Asset Account

  3. transferred to Profit and Loss Account

  4. simply deducted from the asset in the Balance Sheet
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The balance in the Accumulated Depreciation account is a contra-asset balance, so it is subtracted from the asset's cost in the balance sheet to arrive at the book 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 does not depend on fluctuations as:

  1. Market value of asset

  2. Cost of price of asset

  3. Scrap value of asset

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

Depreciation is a systematic allocation of cost, not a valuation process; therefore, it does not fluctuate based on the current market value 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

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

Understand the relationship between accumulated depreciation and depreciation expense and learn how each is accounted for on financial statements are the allocated portion of the cost of a company's fixed assets that are appropriate for the Typical depreciation methods can include straight line, 

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 refers to the 'carrying value' of the asset in the balance sheet as on date.

Depreciation is a charge against the asset over a period of time.
To arrive at 'book value' of asset, accumulated depreciation has to be deducted from the cost, this gives a true and fair of balance sheet which comprises of 'Assets' and 'Liabilities'.

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

A change in accounting policy e.g. change in method of depreciation is justified -

  1. To comply with accounting standard

  2. To ensure more appropriate presentation of the financial statement of the enterprise

  3. To comply with law

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accounting policies are accounting principles and must be applied consistently.

However due to the given reasons changes must be made in the accounting policies to promote a better comparability, enhance reliability and understanding of the financial statements of the entity.

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

Which of the following are applicable to sinking fund method of depreciation?
I. Periodic depreciation is smaller than the assets, actual annual depreciation cost.
II. Amount of interest constantly declines due to assets, reducing balances.
III. Annual net incidence on profit and loss account remains constant due to incorporation of only fixed depreciation.
IV. Periodic depreciation is recorded through the assets account.
Select the correct answer using the codes given:

  1. II and IV

  2. I and III

  3. I, II and III

  4. II, III and IV
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option B is  the correct one.

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.



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

Leasehold property is generally depreciated by _________.

  1. Annuity method

  2. Fixed installment method

  3. Reducing balance method

  4. Insurance polity method
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

By leasehold it means the property is taken on lease for a certain number of years. The most general duration is 99 years, but may be less or much more. The lump sum is paid in advance at the time of taking the lease. This should be regarded by the lessee as the capitalized value of an annuity during the life time of the lease. Depreciation is based on such annuity and is generally a fixed amount every year. 

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 which method of calculating depreciation, interest on the cost of the asset is taken into account?

  1. Annuity method.

  2. Fixed installment.

  3. Insurance policy.

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

Depreciation is defined as the expensing of the cost of an asset involved in producing revenues throughout its useful life.

There are various method of calculating depreciation such as straight line method, Wriiten down value of assets method, sinking fund method, Annuity method, etc.

The annuity method of depreciation is a process used to calculate depreciation on an asset by calculating its rate of return as if it was an investment. This method requires the determination of the internal  rate of return (IRR) on the cash inflows and outflows of the asset. The IRR is then multiplied by the initial book value of the asset, and the result is subtracted from the cash flow for the period in order to find the actual amount of depreciation that can be taken. It is commonly used with assets that have a large purchase price and long 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

Which of the following statement is correct?

  1. A company need not provide for depreciation if it does not want to declare dividends.

  2. Depreciation has to be provided for if dividends are to be declared

  3. The fact that depreciation has not been provided for together with the quantum of arrears of depreciation must be stayed by way of notes.

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Section 123 of the Companies Act 2013 says that a company can declare dividend from:

  • Out of profits (after depreciation) or out of accumulated profits (after depreciation) or from both
  • Out of the money provided by the government if guarantee given by the government
  • Out of free reserves
  • Depreciation to be provided according to schedule II of the act
Considering the above clause of Section 123, all the given 3 statements are correct.

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

Total depreciation during the life cannot exceed _____________.

  1. its book value

  2. its replacement value

  3. its depreciable value

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

The main purpose of depreciation is to reduce the value of an asset over its useful life in such a systematic way that such reduction corresponds with the rate at which depreciation is charged. So the total depreciation over the period of use or simply accumulated depreciation cannot exceed the net book value of the asset or depreciable 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

The principal factor in measurement of depreciation is/are __________.

  1. total cost

  2. residual value

  3. useful life

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

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. Principle factor in measurement of depreciation are total cost of asset, useful life of asset, residual value 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

For charging depreciation, on which of the following assets the depletion method is adopted?

  1. Plant machinery.

  2. Land and building.

  3. Goodwill.

  4. Wasting assets like mines and quarries.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Depletion method is used in case of mines, quarries etc. containing only a certain quantity of product. The depreciation is calculated by dividing the cost of asset by the estimated quantity of product likely to be available. Annual depreciation will be the quantity extracted multiplied by the rate per unit.
Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Which method of inventory valuation helps in reducing the burden of income tax in times of rising prices?

  1. Last-in-first-out

  2. First-in-first-out

  3. Average cost

  4. Base stock method
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

LIFO (Last-In-First-Out) assumes that the most recently purchased, higher-cost items are sold first during periods of rising prices. This results in a higher cost of goods sold, which reduces taxable income.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Accounting policy for inventories of an enterprise is, ' Inventories are valued at the lower of cost determined on weighted average basis or the net realizable value.' Which accounting principle is followed by the enterprise?

  1. Materiality

  2. Prudence

  3. Substance over form

  4. All of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The principle of prudence (or conservatism) dictates that assets should not be overstated. Valuing inventory at the lower of cost or net realizable value ensures that potential losses are recognized, while potential gains are not.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Inventories are assets __________________.

  1. Held for sale in the ordinary course of business

  2. In the production process for such sale

  3. In the form of material or supplied to be consumed in the production process or in the rendering of service

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to accounting standards, inventory includes assets held for sale, assets in the production process for sale, and materials/supplies to be consumed in production or service rendering.