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

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.

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

Under which schedule is the depreciation rate mentioned?

  1. Schedule X

  2. Schedule XII

  3. Schedule XIV

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

Depreciation is the process of systematic allocation of the depreciable amount of an asset over it's useful life.

Earlier as per Companies Act 1956 schedule XIV was applicable, but with the introduction of Company’s Act 2013, method for calculating depreciation has changed from schedule XIV to schedule II.

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

Amortization refers to writing off:

  1. Depleting assets

  2. Wasting assets

  3. Intangible assets

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

The practice of reducing the value of assets to reflect their reduced worth over time. The term means the same as depreciation, though in practice amortisation tends to be used for the write-off of intangible assets, such as goodwill, while either term is used for the write-off of fixed capital.

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

Charging a period for the proportionate cost of an Intangible asset is termed as:

  1. Depreciation

  2. Diminution

  3. Amortisation

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

Fixed Assets are classified as tangible assets and intangible assets. Tangible assets are those which can be touched, felt but intangible assets are those which can not be seen, touched or felt.


Intangible assets are having some fictitious assets like preliminary expenses, deferred revenue expenditure which can not be charged fully in the year of expense but a portion of which is charged to profit & loss account every year. The process of charging these expense to profit & loss account is called Amortisation. 

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

The term "___________" is used for the process of writing down long term investment in intangible.

  1. Depreciation

  2. Depletion

  3. Amortization

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

Amortisation is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principle over time.

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

____________ is/are subject to amortization rather than depreciation.

  1. Goodwill

  2. Copyright

  3. Patents

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

Amortisation is most commonly used for the gradual write-down of the cost of those intangible assets that have a specific useful life. Examples of intangible assets are patents, copyrights, trademarks, goodwill etc.

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

In case of mineral resources __________.

  1. depreciation is provided as per SLM

  2. depreciation is provided as per WDV

  3. depletion is charged

  4. none of the above
Reveal answer Fill a bubble to check yourself
C 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 book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

The gross decreases in economic benefits for the business are what?

  1. Expenses

  2. Obligations

  3. Creditors

  4. Income or gain
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Expenses are defined as decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

______ is not available in the Financial Statements of a company.

  1. Total sales

  2. Total profit and loss

  3. Capital

  4. Cost of production
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

"Cost of production" is meant the total sum of money required for the production of a specific quantity of output. However, cost of production is not recorded in the financial statements of a company.