Tag: accountancy

Questions Related to accountancy

Which of the following statement is incorrect?

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

  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

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Correct Option: D

Under which of the following method depreciation charged declines?

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

  1. Diminishing balance method

  2. Sum of year digit method

  3. Double decline method

  4. All of the above

Show answer
Correct Option: D
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.

Under which of the following method depreciation is not charged uniformity?

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

  1. Fixed instalment method

  2. Insurance policy method

  3. Double decline method

  4. All of the above

Show answer
Correct Option: C
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.

Which of the following is odd one?

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

  1. Amortization

  2. Capitalization

  3. Depletion

  4. Depreciation

Show answer
Correct Option: B
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.

Which of the following method is applicable in case of wasting assets, i.e.,mines, quarries, oil well etc.?

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

  1. Inventory system of depreciation

  2. Machine hour rate

  3. Sum of years digit

  4. Depletion Method

Show answer
Correct Option: D
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.

N Ltd. purchased a machinery on April 1, 2010 for Rs 6,00,000. It is estimated that the machinery will have a useful life of 5 years after which it will have no salvage value. If the company follows sum of year digit method of depredation, the amount of depreciation charged during the year 2014-2015 was ____________.

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

  1. Rs 40,000

  2. Rs 1,20,000

  3. Rs 1,90,000

  4. Rs 2,00,000

Show answer
Correct Option: A
Explanation:

As per sum of year digit method of depreciation,

Useful life = 5 years

Cost = Rs 6,00,000

the digits in the years of the asset's useful life are summed: 1 + 2 + 3 + 4 + 5 = 15.

Calculation of amount of depreciation during the year 2014-2015 is

=1/15 x 600000

= 40,000

Depreciation written off is an example of ________.

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

  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

Show answer
Correct Option: B
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.

Under which schedule is the depreciation rate mentioned?

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

  1. Schedule X

  2. Schedule XII

  3. Schedule XIV

  4. Schedule XV

Show answer
Correct Option: C
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.

Amortization refers to writing off:

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

  1. Depleting assets

  2. Wasting assets

  3. Intangible assets

  4. Fictitious assets

Show answer
Correct Option: C
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.

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

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

  1. Depreciation

  2. Diminution

  3. Amortisation

  4. Expiration

Show answer
Correct Option: C
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.