Tag: depreciation, provision and reserve

Questions Related to depreciation, provision and reserve

In case of mineral resources __________.

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

  1. depreciation is provided as per SLM

  2. depreciation is provided as per WDV

  3. depletion is charged

  4. none of the above

Show answer
Correct Option: C
Explanation:

Depletion is similar to  depreciation in that it is a cost recovery system for accounting and tax reporting. Depletion is the exhaustion of natural resources as a result of their removal. examples are oil, minerals, and timber etc.

Madan Engineers Ltd. purchased a new office equipment on $1$st January for Rs. $50,000$ on lease basis. The company intends to provide for renewal of lease at the end of $5$ years by setting up depreciation fund which may be invested outside the business which will yield interest at $5\%$. Sinking fund table shows Rs. $0.2309$ invested every year will provide Re. $1$ at the end of $5$ years at $5\%$ interest. How much should be transferred to depreciation fund A/c every year in order to provide for renewal of the plant at the end of $5$ years.

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

  1. $Rs. 11,800$

  2. $Rs. 12,900$

  3. $Rs. 11,550$

  4. $Rs. 12,100$

Show answer
Correct Option: C
Explanation:

Annuity factor = 0.230975

The amount transferred to  depreciation fund a/c p.a. = Rs. 50,000 x 0.230975 = Rs. 11,548.75*
*difference is due to rounding of factor.

What amount should be transferred annually to depreciation fund a/c if the cost of the plant is Rs. $600000$, if its is to be written off over $4$ years if sinking fund table shows Rs. $0.23549$ invested annually at $4\%$ for yr amount to Rs. $1.0$.

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

  1. $Rs. 1,48,090$

  2. $Rs. 1,29,000$

  3. $Rs. 1,41,294$

  4. $Rs. 1,43,080$

Show answer
Correct Option: C
Explanation:

Sinking fund table shows the factor = 0.23549

The amount to be transferred annually to depreciation fund account = Rs. 6,00,000 x 0.23549 = Rs. 1,41,294

Depletion method is used in all except __________.

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

  1. Copper mine

  2. Stone quarry

  3. Plant and machinery

  4. Coal mine

Show answer
Correct Option: C
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 etc. For plant and machinery depletion method is not used.

An asset is purchased for Rs. $50,000$ on $1$st January. The life of the machine is estimated to be $5$ years. It is decided to provide depreciation under annuity method by charging $5\%$ interest. The annual depreciation will be ____________.

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

  1. $Rs. 13,800$

  2. $Rs. 14,250$

  3. $Rs. 11,548$

  4. $Rs. 13,500$

Show answer
Correct Option: C
Explanation:

Annuity factor = 0.230975 (Taken from table)

The annual charge for depreciation reckoning interest at 5% p.a. would be 0.230975
the annual depreciation =Rs. 50,000 x 0.23975 =Rs. 11,548.75 i.e. Rs. 11,548

Cost of machine $Rs. 1,00,000$ scrap value $Rs. 10,000$; life $4$ years. What will be the amount of depreciation according to sum of years digit method in the first year?

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

  1. $Rs. 40000$

  2. $Rs. 60000$

  3. $Rs. 36000$

  4. $Rs. 25000$

Show answer
Correct Option: C
Explanation:

Option C is correct.
Sum of years = 1+2+3+4 = 10
Original Cost = 1,00,000
Salvage Value = 10,000

                          = 90,000
Depreciation = 90,000*4/10
                       = 36,000.

Depreciation in the first year will be 36000.