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

Depreciation is to be calculated from the date of _____________________.

  1. Asset put to use

  2. Purchase order of asset

  3. Receipt of asset at business premise

  4. Invoice of assets.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The expense is recognized and reported when the asset is placed into use and is calculated for each accounting period and reported under Accumulated Depreciation on the balance sheet and Depreciation Expense on the income statement. The amount reduces both the asset's value and the accounting period's income.

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

Depletion method depreciation is normally applied in case of _________ assets.

  1. Intangible

  2. Tangible

  3. Wasting

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

Wasting Assets are the asset that has a limited life and thus decreases in value (depreciates) over time.

The term depletion is used in the context of extraction of natural resources like mines, quarries, etc. that reduces the availability of the quantity of the material or asset.

Hence Depletion method depreciation is normally applied in case of wasting assets.

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

Which one of the following depreciation methods is most suitable for a coal mine?

  1. Diminishing balance method

  2. Depletion method

  3. Fixed instalment method

  4. Sum of year's digits method
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Depletion method of depreciation is most suitable for coal mine. This method is specially used for those assets which deplete with use. The cost of the asset is divided by total workable deposits. For example :

If a mine has 2 lakh tons of coal and the value of mine is Rs. 5 lakhs, each ton of coal will cost Rs. 2½. The quantity of coal taken out of the mine in a period will be multiplied by the rate per ton, i.e., Rs. 2½ and the resultant figure will be the amount of depreciation.

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

__________ reduces the availability of the quantity of the material or asset.

  1. Depletion

  2. Amortisation

  3. Depreciation

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

Depletion.

Depletion is an accounting and tax concept used most often in mining, timber, petroleum, or other similar industries. The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Depletion is similar to depreciation in that it is a cost recovery system for accounting and tax reporting.

Depletion for both accounting purposes and united states tax purposes, is a method of recording the gradual expense or use of natural resources over time. Depletion is using up of natural resources by mining, drilling, or felling.

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

_____________________  refers to writing-off the cost of intangible assets.

  1. Valuation

  2. Depreciation

  3. Appreciation

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

Amortization is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. 

The main difference between depreciation and amortization is that the depreciation depreciation is used for tangible asset and amortization is used for intangible asset. 

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

Depreciation is always charged on ______ Assets.

  1. Current

  2. Fixed

  3. Fictitious

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

Fixed Asset are those which provides benefits to the business in future years to come. Fixed Asset looses its value due to normal wear & tear and usage. Every year an amount is charged as depreciation on each of the fixed asset. 

Depreciation is always charged on fixed assets. 

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

The money value which is obtained after selling an asset is called __________.

  1. Cost of sales

  2. Scrap value

  3. Sales

  4. Purchase price
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Below are the three main factors which affect the calculation of depreciation:

  • Cost of Asset
  • Scrap Value 
  • Estimated life of asset

Depreciation is calculated by considering the scrap value of asset.  The money value which is obtained after selling an asset is called scrap value. 

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

Depreciation increase the value of asset.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Depreciation is the process of reduction in the value of asset. 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.

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

The term "__________" is used for the process of measuring and recording the exhaustion of natural resources.

  1. Depreciation

  2. Depletion

  3. Amortization

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

Depletion is similar to  depreciation in that it is a cost recovery system for accounting and tax reporting. Depletion is the exhaustion of natural resources as a result of their removal. examples are oil, minerals, and timber etc.

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

Depreciation fund method is also known as _________.

  1. Annuity method

  2. Sinking fund method

  3. sum of digits method

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

Under sinking fund method, depreciation charged is invested in outside securities at the end of the first year. Interest is earned during the second year and the first entry for investment of interest is made at the end of the year.  Amount of depreciation is calculated with the help of sinking fund tables and hence depreciation fund method is also known as sinking fund method.

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

Which of the following terms is used to describe the process of writing down the long-term investments in intangible assets?

  1. Amortisation

  2. Depreciation

  3. Depletion

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

Amortization can refer to the process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by its maturity date. With mortgage and auto loan payments, a higher percentage of the flat monthly payment goes toward interest early in the loan. With each subsequent payment, a greater percentage of the payment goes toward the loan's principal. 

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

Leasehold property is generally depreciated by ______________.

  1. Annuity method

  2. Fixed installment method

  3. Written down value method

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

Annuity method is particularly applicable to those assets whose cost is heavy and life is long and fixed, e.g. leasehold property, land and building etc.


The annuity method of depreciation is also referred to as the compound interest method of depreciation.

 If the cash flow of the asset being depreciated is constant over the life of the asset, then this method is called the annuity method.

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

The method of depreciation is applied consistently to provide comparability of the results of the operations of the enterprise from period to period. A change from one method of providing depreciation to another is made only ______________.

  1. If the adoption of the new method is required by statute

  2. For compliance with an accounting standard

  3. If it is considered that the change would result in a more appropriate preparation or presentation of the financial/ statements of the enterprise

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

Accounting standards require consistency in depreciation methods to ensure financial comparability. A change is only permitted if it is required by law, mandated by a new accounting standard, or if the change provides a more accurate and fair representation of the financial position.

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

Match the followings:

List I List II
A. Amortization 1. Diminution in the life of the asset due to excessive use
B. Depreciation 2. Exhaustion of natural resources
C. Depletion 3. Expiration of tangible assets
D. Obsolescence 4. Expiration of intangible assets
5. Economic deterioration due to improved inventions
  1. $A = 1, B = 2, C = 3, D = 4$
  2. $A = 1, B = 2, C = 4, D = 5$
  3. $A = 5, B = 2, C = 3, D = 4$
  4. $A = 4, B = 3, C = 2, D = 5$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option D is the Correct one.

1. Depreciation charged on fixed tangible assets.ex. Machinery, Furniture, etc
2. Amortization charged on fixed intangible assets. ex Goodwill copyright etc
3. Depletion charged on Exhaustion of natural resources ex. coal mines etc
4. Obsolescence is economic deterioration due to improved inventions.