Tag: book keeping and accountancy

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Questions Related to book keeping and accountancy

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

In case there is revision in estimated useful life of a depreciable asset, the remaining unamortized amount is charged to __________.

  1. remaining useful life

  2. written off in the current year as current charges

  3. written off in the current year as prior period adjustment

  4. treated as deferred revenue expenditure to be written off in $3$ years
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In case the useful life of the asset is changed, the amortised amount should be charged to the asset over the revised remaining estimated useful life of the asset. Such a revision should be treated as change in accounting estimates.  

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

On $1-1-2014$, a company acquired a car for Rs. $350,000$ on instalment basis and paid Rs. $1,50,000$ as down payment whose cash price was Rs. $3,00,000$. During $2014$, one instalment of Rs. $50,000$ (including Rs. $15,000$ interest) was paid. The amount of depreciation for the year $2016$ at $10\%$ on SLM is ___________.

  1. $Rs.35,000$

  2. $Rs.20,000$

  3. $Rs.30,000$

  4. $Rs.18,500$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

If anything is purchased on installment basis, it comprises of interest expense in the total cost.

Here, the cash price of the car is $Rs.3,00,000$ whereas company acquired it at $Rs.3,50,000$ which clearly indicates $Rs.50,000$ is paid towards interest expense and interest expense can not be capitalized.
Therefore, Depreciation is calculated on the actual price of the car i.e. $Rs.3,00,000$ X $10$ %= $Rs.30,000$ on SLM basis.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Depreciation fund method is designed to _____________________________.

  1. Only provide for depreciation of an asset

  2. Provide for depreciation and also to accumulate the amount for its replacement

  3. Provide for the payment of some liability

  4. Providing for future loss
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option b is the correct one.

in this method we will charge the depreciation every year and accumulate it for the purchasing new assets.for that accumulated depreciation we will keep as specific fund.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

In the case of a particular depreciation method, the periodic depreciation is smaller than the asset's actual depreciation cost. The annual net incidence on profit and loss account remains constant due to incorporation of only fixed depreciation. The periodic depreciation is not recorded through the asset account. The depreciation method used in this case is ________________.

  1. Sinking fund method

  2. Diminishing balance method

  3. Annuity method

  4. Sum-of-years digits method
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The sinking fund method involves setting aside a fixed amount annually, which earns interest, so the periodic charge is lower than the actual depreciation cost.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

For using the equal installment method for depreciation the relevant formula is:

  1. Annual charge against profit $=\cfrac { Original\quad cost-Residual\quad value }{ Number\quad of\quad years\quad of\quad active\quad life } $

  2. Annual charge against profit $=\cfrac { Number\quad of\quad years\quad of\quad active\quad life }{ Original\quad cost-Residual\quad value } $

  3. Annual charge against profit $=\cfrac { Original\quad cost-Residual\quad value }{ Estimated\quad number\quad of\quad years\quad remaining } $

  4. Annual charge against profit $=\cfrac { Estimated\quad number\quad of\quad years\quad remaining }{ Original\quad cost-Residual\quad value } $
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Equal installment Method:

In this method a fixed or equal amount of depreciation written off as depreciation at the end of each year, during the life time of the asset. Thus the book value of the asset will become zero or its residual value. This method is suitable for patent, furniture, short-lease etc.

The amount of depreciation may be calculated as :

Amount Charge against profit = (original cost – Residual value)/Number of years of active life

 

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

For providing depreciation on hand tools, the appropriate method of depreciation is ___________.

  1. Replacement method

  2. Revaluation method

  3. Depletion method

  4. Annuity method
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Revaluation method.

Under revaluation method of depreciation, the assets are revalued each year. The method is normally adapted to charge depreciation on numerous inexpensive fixed assets like small tools, livestock, patents, hand tools,copy rights and other assets of such nature which are constantly changing and their period of life is most uncertain. Accordingly periodic inventory is taken of usable items and valued at cost irrespective of ruling prices. Excess of the opening over the closing inventory thus gives the periodic depreciation expenses.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

On August 01, 2002, a travel company bought four vans costing Rs. $2,40,000$. The company expected to fetch a scrap value of $25$% of the cost price of the vehicles after ten years. The vehicles were depreciated under the fixed installment method up to March 31, 2005. With effect from April 01, 2005, the company decided to introduce the diminishing balance method of depreciation @$30$% p.a instead of the fixed installment method. The company sold one of the vans at Rs. $1,40,000$ on March 31, 2005. The rate of depreciation charged up to March 31, 2005, was

  1. $10.0$%

  2. $9.0$%

  3. $8.5$%

  4. $7.5$%
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Cost = 2,40,000. Scrap = 25% of 2,40,000 = 60,000. Depreciable amount = 1,80,000. Life = 10 years. Annual depreciation = 1,80,000 / 10 = 18,000. Rate = (18,000 / 2,40,000) * 100 = 7.5%.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

The cost of a machinery having a life span of $5$ years is $Rs. 1,00,000$. It has a scrap value of $Rs. 10,000$. The amount of depreciation under the sum of digits method in the first year will be:

  1. $Rs. 16000$

  2. $Rs. 18000$

  3. $Rs. 30000$

  4. $Rs. 25000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Using Sum of Digits method:

Adding number of years:1+2+3+4+5=15
Therefore, ($Rs.1,00,000$-$Rs.10,000$) X remaining number of years i.e 5
=$90,000$ X $5$= $Rs.4,50,000$  divide by the sum of digits of the useful life i.e 15=$Rs.4,50,000$/$15$=$Rs.30,000$

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

'Depreciable amount of depreciable assets is __________.

  1. historical cost

  2. original cost

  3. historical cost less than residual value

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

The depreciable amount is defined as the historical cost of an asset minus its estimated residual (scrap) value.

Multiple choice book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

Accumulated depreciation should be shown on the statement of financial position _____.

  1. As a deduction from current assets

  2. As part of owner's equity

  3. As a current liability

  4. As a deduction from the cost of corresponding fixed assets
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Accumulated depreciation is a contra-asset account, meaning it is shown as a deduction from the gross cost of the fixed asset on the balance sheet.