Tag: depreciation, provision and reserve

Questions Related to depreciation, provision and reserve

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

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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

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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

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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. 

The term "___________" is used for the process of writing down long term investment in intangible.

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

  1. Depreciation

  2. Depletion

  3. Amortization

  4. Obsolescence

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Correct Option: C
Explanation:

Amortisation is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principle over time.

____________ is/are subject to amortization rather than depreciation.

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

  1. Goodwill

  2. Copyright

  3. Patents

  4. All the three

Show answer
Correct Option: D
Explanation:

Amortisation is most commonly used for the gradual write-down of the cost of those intangible assets that have a specific useful life. Examples of intangible assets are patents, copyrights, trademarks, goodwill etc.