Tag: depreciation

Questions Related to depreciation

Under sum of years digit method, the amount of depreciation.

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

  1. Goes on decreasing in the coming years

  2. Goes on increasing in the counting years

  3. Remains fixed over the life of the asset

  4. None of these

Show answer
Correct Option: A

Under annuity method, the amount of depreciation _____________.

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

  1. Increases every year

  2. Decreases every year

  3. Remains fixed over the life of the asset

  4. None of these

Show answer
Correct Option: C
Explanation:

Option C is the correct one.

The asset is then credited with a fixed amount of depreciation for each successive year. The annuity method assumes that the sum spent on buying an asset is an investment that should be expected to yield interest.

Which method of charging depreciation considers that the business besides losing the original cost of the asset also loses interest on the amount used for buying the asset?

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

  1. Annuity method.

  2. Straight Line method.

  3. Diminishing Balance method.

  4. Depreciation fund method.

Show answer
Correct Option: A
Explanation:

Option A is the correct one.

The annuity method assumes that the sum spent on buying an asset is an investment that should be expected to yield interest. As such, the interest is charged on the diminishing balance of the asset.

Choose the correct statement _________________________.

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

  1. The term depreciation, depletion and amortization are not synonymous

  2. The main object of charging the profit and loss account with depreciation is to spread the cost of an asset over its useful life for the purpose of income measurement

  3. In case of diminishing balance method, the asset gets reduced to zero

  4. Machine hour rate per unit $=$ Acquisition cost $-$ Residual value/ Estimated life in years

Show answer
Correct Option: B
Explanation:

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.

Since it is difficult to precisely match a productive asset's cost to a company's revenues, the asset's cost is usually allocated to the years in which the asset is used. In other words, depreciation systematically moves the asset's cost from the balance sheet to depreciation expense on the income statement over the asset's useful life. Accountants point out that depreciation is an allocation process which does not result in reporting the asset's market value.

Fundamental objective of depreciation is/are ________.

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

  1. To maintain the nominal capital invested in fixed assets

  2. To allocate the expired portion of the cost of fixed assets over a number of accounting periods

  3. Both (A) and (B)

  4. None of the above

Show answer
Correct Option: C

For charging depreciation, on which of the following assets, the depletion method is adopted?

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

  1. Goodwill.

  2. Plant machinery.

  3. Land and building.

  4. Wasting assets like mines and quarries.

Show answer
Correct Option: D

For which of the following asset depreciation can be applied?
(I) Land
(II) Furniture
(III) Machinery

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

  1. (II) and (III)

  2. (II) only

  3. (I) and (III)

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

Show answer
Correct Option: A

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

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:

Option D is correct. Under this method, depreciation is charged on the basis of output extracted in comparison with the estimated total contents of mines. Steps are : -
1) Total contents of the assets are first estimated in terms of tons, gallons etc. 

2) Thereafter the total cost of the asset is divided by the total units of contents in order to find out the rate of depreciation. 
3)After that, amount of depreciation is calculated on the basis of quantity extracted for a particular year by multiplying with the rate of depreciation so ascertained. 

On 1.1.2015, N Ltd. has a stock of bottles valued at Rs. $8,000$. On 1.7.2015, they purchased additional bottles which amounted to Rs. $5,000$ on 31.12.2015, the stock of bottles were revalued at Rs. $10,500$. Depreciation on bottle = ?

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

  1. Rs. $13,000$

  2. Rs. $8,000$

  3. Rs. $2,500$

  4. Rs. $10,500$

Show answer
Correct Option: C