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

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.

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.