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 depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Under annuity method, the amount of depreciation _____________.

  1. Increases every year

  2. Decreases every year

  3. Remains fixed over the life of the asset

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

Option C is the correct one.

The asset is then credited with a fixed amount of depreciation for each successive year. The annuity method assumes that the sum spent on buying an asset is an investment that should be expected to yield interest.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Which method of charging depreciation considers that the business besides losing the original cost of the asset also loses interest on the amount used for buying the asset?

  1. Annuity method.

  2. Straight Line method.

  3. Diminishing Balance method.

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

Option A is the correct one.

The annuity method assumes that the sum spent on buying an asset is an investment that should be expected to yield interest. As such, the interest is charged on the diminishing balance of the asset.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Choose the correct statement _________________________.

  1. The term depreciation, depletion and amortization are not synonymous

  2. The main object of charging the profit and loss account with depreciation is to spread the cost of an asset over its useful life for the purpose of income measurement

  3. In case of diminishing balance method, the asset gets reduced to zero
  4. Machine hour rate per unit $=$ Acquisition cost $-$ Residual value/ Estimated life in years
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The purpose of depreciation is to achieve the matching principle of accounting. That is, a company is attempting to match the historical cost of a productive asset (that has a useful life of more than a year) to the revenues earned from using the asset.

Since it is difficult to precisely match a productive asset's cost to a company's revenues, the asset's cost is usually allocated to the years in which the asset is used. In other words, depreciation systematically moves the asset's cost from the balance sheet to depreciation expense on the income statement over the asset's useful life. Accountants point out that depreciation is an allocation process which does not result in reporting the asset's market value.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Fundamental objective of depreciation is/are ________.

  1. To maintain the nominal capital invested in fixed assets

  2. To allocate the expired portion of the cost of fixed assets over a number of accounting periods

  3. Both (A) and (B)

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

Depreciation serves two main purposes: it allocates the cost of a tangible asset over its useful life (matching principle) and it ensures that the capital invested in the asset is systematically recovered.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

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

  1. Goodwill.

  2. Plant machinery.

  3. Land and building.

  4. Wasting assets like mines and quarries.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The depletion method is specifically used for wasting assets, such as mines, oil wells, and quarries, where the asset is physically consumed or extracted over time.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

For which of the following asset depreciation can be applied?
(I) Land
(II) Furniture
(III) Machinery

  1. (II) and (III)

  2. (II) only

  3. (I) and (III)

  4. All (I), (II) and (III)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Land is not a depreciable asset because it has an indefinite useful life. Furniture and machinery are tangible assets that wear out or become obsolete, making them subject to depreciation.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Which of the following method is applicable in case of wasting assets, i.e., mines, quarries, oil well etc.?

  1. Inventory system of depreciation.

  2. Machine hour rate.

  3. Sum of years digit.

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

Option D is correct. Under this method, depreciation is charged on the basis of output extracted in comparison with the estimated total contents of mines. Steps are : -
1) Total contents of the assets are first estimated in terms of tons, gallons etc. 

2) Thereafter the total cost of the asset is divided by the total units of contents in order to find out the rate of depreciation. 
3)After that, amount of depreciation is calculated on the basis of quantity extracted for a particular year by multiplying with the rate of depreciation so ascertained. 

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Sum of years digits method is _________ type of depreciation providing method.

  1. Uniform charge method

  2. Declining charge method

  3. Depletion method

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

The sum-of-the-years-digits method provides higher depreciation in the early years and lower in the later years, which classifies it as a declining charge method.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

In annuity method interest is calculated on ________.

  1. the value of the asset at the time of purchase

  2. the value of the asset at the beginning of each year

  3. the value of asset as expected at the end value of asset

  4. Both a & b
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In the annuity method, the asset is treated as an investment. Interest is calculated on the book value of the asset at the beginning of each year to determine the annual charge.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

When depreciation fund account closes, it transfers its balance to ___________.

  1. Sinking fund account

  2. New asset account

  3. Old asset account

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

When the depreciation fund (or sinking fund) is used to replace an asset, the accumulated balance in the fund is transferred to the asset account to write off the old asset's cost.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Change in depreciation method requires ________.

  1. change in consistency

  2. an explanatory paragraph

  3. Both a & b

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

Changing a depreciation method is a change in accounting estimate or policy. It requires disclosure in the financial statements, often through an explanatory paragraph, to maintain transparency regarding the change in consistency.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

For changing the method of calculation of depreciation an enterprise should not ___________.

  1. calculate the value of asset by old method on the date of change

  2. calculate the depreciation of the past period of asset by new method

  3. calculate the depreciation of past

  4. find out the cost value of asset
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When changing a depreciation method, one should not calculate the value of the asset by the old method on the date of change as if the new method never existed; instead, the change is usually applied prospectively or retrospectively depending on the standard.

Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Depreciation fund method is also known as ________.

  1. Sinking fund method

  2. Annuity method

  3. Sum of years digits method

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

The depreciation fund method is commonly referred to as the sinking fund method because the annual amounts set aside are invested to accumulate interest until the asset is replaced.