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

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.

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.