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 book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Provision is ______________.

  1. An appropriation of profits

  2. A charge against the profits

  3. Writing off losses

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

The term provision refers to any of the following amounts :

(a) The amount written off or reatined by way of providing for depreciation, renewals or diminution in value of assets; or
(b) The amount retained by way of providing  for any known liability of which the amount cannot be determined with substantial accuracy.
Provision is a charge against profit and is required to be created irrespective of the amount of profit.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Any profit or loss on the sale of sinking (depreciation) fund investment is transferred to:

  1. Profit and loss account

  2. Asset account

  3. Sinking fund account (depreciation fund account)

  4. Depreciation A/c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Option C is the correct one.

Under this method, the amount of depreciation charged every year is transferred to the sinking fund account. Also, the sale proceeds of the old asset and any profit or loss from the sale of investments are transferred to the Sinking Fund Account.this amount also invested in govt.securities.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

The profit on depreciation policy is transferred to ________________.

  1. Depreciation fund account

  2. Asset account

  3. Profit and loss account

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

Sinking fund method is used when the cost of replacement of an asset is too large. Depreciation is charged every year to the profit and loss A/c. But, it may sometimes happen that the amount is not readily available at the time of purchase of the new asset. 


Thus, the sinking fund method is used.Under this method, the amount of depreciation charged every year is transferred to the sinking fund account. This amount is then invested in Government securities. Also, the interest earned on these securities is reinvested.

The amount of depreciation to be charged every year is calculated after considering the element of interest. The interest will be earned on the amount which is invested every year and will remain invested till the useful life of the asset.


Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Loss on the sale of machinery should be written off against _______.

  1. Share Premium Account

  2. Sales Account

  3. Depreciation Fund Account

  4. General Reserve Account
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to the Diminishing Balance Method, depreciation is charged at a fixed percentage on the book value of the asset. As the book value reduces every year, it is also known as the Reducing Balance Method or Written-down Value Method.

Since the book value reduces every year, hence the amount of depreciation also reduces every year. Under this method, the value of the asset never reduces to zero.

When the amount of depreciation charged under this method and the corresponding period are plotted on a graph it results in a line moving downwards.

This method is based on the assumption that in the earlier years the cost of repairs to the assets is low and hence more amount of depreciation should be charged. Also, in the later years, the cost of repairs will increase and therefore less amount of depreciation shall be provided. 

Hence, this method results in an equal burden on the profit every year during the life of the asset.

However, under this method, if the rate of depreciation applied is not appropriate it may happen that at the end of the useful life of the asset full depreciation is not provided.

Also, while applying this method, the period of use of the asset should be considered. If an asset is used only for 2 months in a year then depreciation will be charged only for 2 months.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

An alternative term used for accumulated depreciation expenses?

  1. Provision for depreciation.

  2. Cumulative depreciation.

  3. Targeted depreciation.

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

Provision for depreciation is a common term used to describe the accumulated depreciation account in many accounting frameworks.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

In case the depreciable assets are revalued, the provision for depreciation is based on _____________.

  1. The revalued amount on the estimate of the remaining' useful life of such assets

  2. Original cost of the assets

  3. Depreciated value of the assets
  4. $AS-6$ is silent in this regard
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When an asset is revalued, the new depreciation charge is based on the revalued amount and the estimated remaining useful life of the asset.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

When Provision for Depreciation Account is maintained, the annual charge for depreciation shall be _________.

  1. debited to Provision for Depreciation Account and credited to Profit and Loss Account

  2. credited to Asset Account and debited to Profit and Loss Appropriation Account

  3. debited to Asset Account and credited to Profit and Loss Appropriation Account

  4. debited to Profit and Loss Account and credited to Provision for Depreciation Account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When using the provision method, depreciation is recorded by debiting the Profit and Loss account (as an expense) and crediting the Provision for Depreciation account.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

An alternative term used for accumulated depreciation expenses?

  1. Provision for depreciation

  2. Cumulative depreciation

  3. Targeted depreciation

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

Provision for depreciation is an alternative term used for accumulated depreciation expenses. Depreciation expense is recognized on the income statement as a non-cash expense that reduces the company's net income.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

What is the accumulated depreciation?

  1. Sum of all depreciation expenses of a fixed asset

  2. Depreciation expenses

  3. Cost of depletion of assets

  4. Future value of fixed asset
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accumulated depreciation is the total amount of a plant asset's cost that has been allocated to depreciation expense (or to manufacturing overhead) since the asset was put into service.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

On a worksheet, the adjusting entry to account for depreciation of equipment consists of __________.

  1. debit to Depreciation Expense and a credit to Equipment

  2. debit to Depreciation Expense and a credit to Accumulated Depreciation

  3. debit to Equipment and a credit to Accumulated Depreciation

  4. debit to Accumulated Depreciation and a credit to Equipment
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The basic journal entry for depreciation is to debit the Depreciation Expense account (which appears in the income statement) and credit the Accumulated Depreciation account (which appears in the balance sheet as a contra account that reduces the amount of fixed assets).

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Providing depreciation is compulsory as it reflects ________.

  1. true financial position

  2. makes provision so that in future the replacement asset could be purchased

  3. both a & b

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

Depreciation is a systematic allocation of the cost of an asset over its useful life. It ensures the financial statements show the true financial position by matching expenses to revenue and provides for the eventual replacement of the asset.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

The estimated value of an asset after the expiry of its useful life is called as _______________.

  1. Written Down value

  2. Residual Value (Right Answer)

  3. Accumulated depreciation

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

An asset can reach full depreciation when its useful life expires or if an impairment charge is incurred against the original cost, though this is less common.  The balance sheet will still reflect the original cost of the asset and the equivalent amount of accumulated depreciation.