Tag: accountancy

Questions Related to accountancy

Depreciation fund method is also known as ________.

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

  1. Sinking fund method

  2. Annuity method

  3. Sum of years digits method

  4. None of these

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Correct Option: A

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

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

  1. annuity method

  2. depletion method

  3. revaluation method

  4. sum of digits method

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Correct Option: B

Depreciation is generally provided on ______________.

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

  1. Current Assets

  2. Fixed Assets

  3. Loan & Advances

  4. Fixed Liabilities

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Correct Option: B
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.

On which of the following asset depreciation cannot be provided?

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

  1. Building

  2. Land

  3. Mines

  4. Loose tools

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Correct Option: B
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).

Amortization applies to ________________.

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

  1. Current Assets

  2. Wasting Assets

  3. Intangible Assets

  4. Non - Current Assets

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Correct Option: C
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.

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

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

  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

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Correct Option: D

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

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

  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

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Correct Option: A
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.

Under which of the following method depreciation is charged uniformly?

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

  1. Insurance policy method

  2. Annuity method

  3. Depreciation fund method

  4. All of the above

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Correct Option: D
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. 


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

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

  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

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Correct Option: A
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.

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 -

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

  1. Only (I) of the above

  2. Only (II) of the above

  3. Only (III) of the above

  4. All (I),(II) and (III)

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Correct Option: D
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.