Commerce Accountancy · Economics

Journal Entries and Depreciation

650 Questions

Journal entries and depreciation are core accountancy topics involving the systematic recording of financial transactions and the calculation of asset value reduction over time. Students must solve problems related to bad debts, provision calculations, and error rectification. These questions are essential for candidates appearing in commerce and accounting competitive exams.

Bad debts provisionAsset depreciation calculationPurchase return errorsTrial balance rectificationDebenture issuance

Journal Entries and Depreciation Questions

Multiple choice

Which of the following errors is an error of principle?

  1. Rs. 600 received from Ganpat has been debited to his account

  2. Purchase of Rs. 2, 000 has been entered in the sales journal

  3. Repairs of building have been debited to building account

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 An error of principle is an error in which the value recorded was the correct value but placed incorrectly.

Multiple choice

Cost of Rs. 1, 80, 000 for dismantling, removing and reinstalling the plant by a Cotton Mill incurred in connection with removal of works to a more suitable locality is

  1. capital expenditure

  2. revenue expenditure

  3. deferred revenue expenditure

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

 Deferred revenue expenditure is the expenditure for which the payment has been made or the liability has been incurred, but which is carried forward on the presumption that it will be beneficial over the subsequent period or periods.

Multiple choice

Purchase price of machine 75, 000, installation charges Rs. 25, 000, residual value Rs. 40, 960. The annual depreciation under WDV is Rs. 20, 000. The useful life of machine is

  1. 6 years

  2. 5 years

  3. 4 years

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

Using WDV method: Cost = 75,000 + 25,000 = 100,000. Annual depreciation = 20,000 (given). Residual value after n years = 100,000 × (1 - 0.20)^n = 40,960. Solving: 0.8^n = 0.4096, so n = 4 years. Verifying: Year 1: 80,000; Year 2: 64,000; Year 3: 51,200; Year 4: 40,960 ✓

Multiple choice

Consider the following information: I. Rate of depreciation under the written down method = 20% II. Original cost of asset = Rs. 2, 00, 000 III. Residual value of the asset at the end of useful life = Rs. 81, 920

The estimated useful life of the asset, in years is

  1. 4

  2. 5

  3. 6

  4. 7
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Given WDV rate = 20%, Original cost = 2,00,000, Residual = 81,920. Using WDV formula: 2,00,000 × (1 - 0.20)^n = 81,920. So 0.8^n = 0.4096. Testing values: 0.8^4 = 0.4096 exactly. Therefore n = 4 years. Verifying: 2,00,000 → 1,60,000 → 1,28,000 → 1,02,400 → 81,920 ✓

Multiple choice

Consider the following information: I. Rate of depreciation under the written down method = 20% II. Original cost of asset = Rs. 2, 00, 000 III. Residual value of the asset at the end of useful life = Rs. 81, 920

Depreciation for 3rd year =

  1. Rs. 40, 000

  2. Rs. 32,000

  3. Rs. 25, 600

  4. Rs. 20, 480
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Year 1 depreciation: 2,00,000 × 20% = 40,000. WDV after Year 1: 2,00,000 - 40,000 = 1,60,000. Year 2 depreciation: 1,60,000 × 20% = 32,000. WDV after Year 2: 1,60,000 - 32,000 = 1,28,000. Year 3 depreciation: 1,28,000 × 20% = 25,600 ✓

Multiple choice

X Ltd. which depreciates its machinery at 10% p.a. on diminishing balance method, had on 1st April 20X6 some balance to the debit of machinery account. It purchased a new machine for Rs. 1, 90, 000 on 1.8.20X6 after incurring Rs. 10, 000. After providing depreciation the closing balance of machinery account as at 31.3..20X7 is Rs. 10, 64, 800.

The original cost of old machines purchased on 1.4.20X4 is

  1. Rs. 12, 00, 000

  2. Rs. 10, 80, 000

  3. Rs.9, 72, 000

  4. Rs. 8, 74, 800
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Let old machines original cost (1.4.20X4) be X. New machine: 1,90,000 + 10,000 = 2,00,000 (from 1.8.20X6). New machine depreciation: 2,00,000 × 10% × 8/12 = 13,333. New machine WDV: 1,86,667. Old machines after 3 years (1.4.20X4 to 31.3.20X7): WDV = X × 0.9^3 = 0.729X. Total balance given: 10,64,800 = 1,86,667 + 0.729X. Solving: 0.729X = 8,78,133, so X ≈ 12,04,000 ≈ 12,00,000 ✓

Multiple choice

On October 01.2003 two machines costing Rs. 40, 000 and Rs. 30, 000 respectively, were purchased. On March 31, 2007 both the machines had to be discarded because of damage and had to be replaced by two machines costing Rs. 50, 000 and Rs. 40, 000 respectively

One of the discarded machine was sold Rs. 12, 000 and against the other it was expected that Rs. 10, 000 would be realized. The firm provides depreciation @ 15% on written down value

Depreciation for 2005 - 2006 =

  1. Rs. 5, 250

  2. Rs. 9, 712

  3. Rs. 8, 256

  4. Rs. 7, 018
Reveal answer Fill a bubble to check yourself
A Correct answer
Multiple choice

On October 01, 2003 two machines costing Rs. 40, 000 and Rs. 30, 000 respectively, were purchased. On March 31, 2007 both the machines had to be discarded because of damage and had to be replaced by two machines costing Rs. 50, 000 and Rs. 40, 000 respectively

One of the discarded machine was sold Rs. 12, 000 and against the other it was expected that Rs. 10, 000 would be realised. The firm provides depreciation @ 15% on written down value

The total amount of depreciation written off on the two machines till they were discarded is

  1. Rs. 42, 000

  2. Rs. 30, 236

  3. Rs. 27, 190

  4. Rs. 36, 388
Reveal answer Fill a bubble to check yourself
B Correct answer
Multiple choice

The assets on 31.12.2001 is of Rs. 60, 000 and the capital is of Rs. 45, 000. Its liabilities on that date shall be

  1. Rs. 60, 000

  2. Rs. 1, 05, 000

  3. Rs. 15, 000

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The fundamental accounting equation is: Assets = Capital + Liabilities. Therefore: Liabilities = Assets - Capital = 60,000 - 45,000 = 15,000. Option A incorrectly uses the asset value. Option B incorrectly adds capital and assets. Option D is unnecessary as option C is correct.

Multiple choice

Goods costing Rs. 1, 000 (Sale Price Rs. 1, 200) given as charity should be credited to

  1. sales account with Rs. 1, 200

  2. sales account with Rs. 1, 000

  3. purchase account with Rs. 1, 000

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

When goods are given as charity, they are removed from purchases. The entry is: Charity Account debited and Purchases Account credited. The credit is always at COST PRICE (Rs. 1000), not selling price, because we are removing the goods from our inventory.