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

The method is specially suited to natural resources (mines, quarries, sand, pits etc.) is said to be ________.

  1. annuity method

  2. depletion method

  3. revaluation method

  4. sum of digits method
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The depletion method is specifically designed for natural resources where the asset is physically exhausted through extraction.

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

Depreciation is generally provided on ______________.

  1. Current Assets

  2. Fixed Assets

  3. Loan & Advances

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

Depreciation of property :- It is calculated as the 'factor' product of the total value of the property with the age of construction. The depreciation factor remains valid only for the concrete structures and not land.

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

On which of the following asset depreciation cannot be provided?

  1. Building

  2. Land

  3. Mines

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

The land asset is not depreciated, because it is considered to have an infinite useful life. 

During this useful life, they are depreciated, which reduces their cost to what they are supposed to be worth at the end of their useful lives (which is known as salvage value).

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

Amortization applies to ________________.

  1. Current Assets

  2. Wasting Assets

  3. Intangible Assets

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

Amortization of intangibles is the process of expensing the cost of an intangible asset over the projected life of the asset. Intangible assets, such as patents and trademarks, are amortized into an expense account. Tangible assets are posted to expenses through depreciation.

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

Which of the following is/are the important characteristic of depreciation?

  1. Depreciation is sudden loss

  2. Depreciation is a appropriation of profit

  3. Depreciation is one of the methods for valuation of fixed assets

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

Depreciation is not a sudden loss (it is gradual), not an appropriation of profit (it is a charge against profit), and it is not a valuation method (it is a cost allocation method).

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

Which of the following is/are not the important characteristic of depreciation?

  1. Total depreciation can exceed its depreciable value or original cost

  2. Depreciation is calculated in respect of fixed assets only

  3. Depreciation is always computed in a systematic and rational manner

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

Depreciation is thus the decrease in the value of assets and the method used to reallocate, or "write down" the cost of a tangible asset (such as equipment) over its useful life span.

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

Under which of the following method depreciation is charged uniformly?

  1. Insurance policy method

  2. Annuity method

  3. Depreciation fund method

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

Insurance Policy Method  In this method, instead of purchasing securities, an insurance policy is purchased for an amount equal to the cost of replacement of asset.

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.  As such, the interest is charged on the diminishing balance of the asset.
The sinking fund method is a technique for depreciating an asset while generating enough money to replace it at the end of its useful life. As depreciation charges are incurred to reflect the asset's falling value, a matching amount of cash is invested. 


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

Which of the following is/are not the objectives of providing depreciation?

  1. To create secrete reserve

  2. To derive maximum tax benefit

  3. To ascertain the proper cost of the product

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

Secret reserve helps in eliminating unhealthy competition by not showing true profit to the competitors.  

The existence of secret reserve is known to the management only and not to the real owners or shareholders. *Secret reserve makes the information of financial statements false and inaccurate.

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

Which of the following statements is/are false?
(I) The term 'depreciation', 'depletion' and 'amortization' convey the same meaning.
(II) Provision For Depreciation A/c debited when Provision For Depreciation A/c is created.
(III) The main purpose of charging the Profit & Loss A/c with the amount of depreciation is to spread the cost of an asset over its useful life for the purpose of income determination.
The correct option is -

  1. Only (I) of the above

  2. Only (II) of the above

  3. Only (III) of the above

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

    (I)  Prorating cost of an “Intangible Asset” over the period during which benefits of this asset are estimated to last is called Amortization. The concept of amortization is also used with leases & debt repayment. Amortization is for Intangible assets  Depletion is for natural resources such as timber and oil.  Depreciation = related to tangible assets, e.g. property, plant and equipment.

   (II)  Assets is a debit balance on the TB. Therefore, provision for depreciation of a fixed asset is a credit balance. Provision for depreciation reduces the balance of a fixed asset. Therefore, it must be credited to reflect such reduction.
  (III)  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.

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

Which of the following statement is incorrect?

  1. Depreciation is the expense charged to profit and loss account before arriving at the net profit of the year

  2. The cost of fixed asset in the form of depreciation has to be matched against the revenues of the years over which the asset is used

  3. Depreciation means appointment or allocation of the cost of the fixed asset over its useful life

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

All the statements provided (A, B, and C) are correct definitions or principles of depreciation. Therefore, 'None of the above' is the correct choice.

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

Under which of the following method depreciation charged declines?

  1. Diminishing balance method

  2. Sum of year digit method

  3. Double decline method

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

Diminishing Balance Method of Calculating Depreciation :- Under this method, the amount of depreciation is calculated as a fixed percentage of the reducing or diminishing value of the asset standing in the books at the beginning of the year, so as to bring down the book value of the asset to its residual value.


The sum of years' digits method is a form of accelerated depreciation that is based on the assumption that the productivity of the asset decreases with the passage of time. Under this method, a fraction is computed by dividing the remaining useful life of the asset on a particular date by the sum of the year's digits. 

Double declining balance method is a form of an accelerated depreciation method in which the asset value is depreciated at twice the rate it is done in the straight-line method.

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

Under which of the following method depreciation is not charged uniformity?

  1. Fixed instalment method

  2. Insurance policy method

  3. Double decline method

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

Double-Declining Balance, revenues and assets will be reduced more due to the higher depreciation expense. In later years, a lower depreciation expense can have a minimal impact on revenues and assets. However, revenues may be impacted by higher costs related to asset maintenance and repairs.

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

Which of the following is odd one?

  1. Amortization

  2. Capitalization

  3. Depletion

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

   Amortization is the process of incrementally charging the cost of an asset to with charging intangible assets to expense over time, and depreciation is Similarly, depletion is associated with charging the cost of natural .

    Capitalized cost. A capitalized cost is recognized as part of a fixed asset, rather than being charged to expense in the period incurred.

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

Depletion is a periodic charge to expense for the use of natural resources. Thus, it is used in situations where a company has recorded an asset for such items as oil reserves, coal deposits, or gravel pits. Compute a depletion base. Compute a unit depletion rate.

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

Depreciation written off is an example of ________.

  1. Increase in Asset & Owner's Liability

  2. Decrease in Asset & Owner's Liability

  3. Increase in Liability & Owner's Liability

  4. Decrease in Liability & Increase in Owner's Liability

  5. Increase in Liability & Decrease in Owner's Liability
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Depreciation written off is an expense and the amount written off will be deducted from the asset and the same will be decreased from owners equity. It is an expense and hence will be debited to the profit and loss account which will eventually reduce owner's equity.