Tag: disposal of asset

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Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

When scrap is sold ________ account is credited.

  1. Asset A/c

  2. Bank A/c

  3. Scrap A/c

  4. None of the Above.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Scrap value is the estimated cost that a fixed asset can be sold for after providing in for full depreciation.  When an asset is purchased, asset account is debited as assets have debit balance. So when scrap is sold, asset account is credited with the amount received on sale. 

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

An item of fixed assets which has retired from active use and is held for disposal is ______________.

  1. not shown in the financial statement

  2. shown at net book value

  3. shown at net realizable value

  4. shown at lower of net book value and net realizable value
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

As the assets is already retired from active use, the valuation has to be shown on the basis of net book value or net realizable value whichever is lower. 

This is based on the concept of conservatism. 

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

Give journal entries for:
Transfer of balance in asset account in case of loss.

  1. Profit and Loss A/c Dr.

    To Asset A/c

  2. Asset A/c Dr.

    To Profit and Loss A/c

  3. Bank A/c Dr.

    To Asset A/c

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If the asset is disposed off, the profit or loss generated on account of sale has to be transferred to the respective asset a/c. If the sale proceed is more than the written down value of the asset, there will be profit and if the sale proceed is lower than the written down value, there will be loss on sale of asset. 


For example , WDV of the machine is Rs.5000 which is sold for Rs.4500. There is a loss of Rs.500 on sale of asset. Following entry will be passed in the books of account for loss:

Profit & Loss A/c                            Dr.   500
Bank A/c                                         Dr. 4500
       To Asset A/c                                                5000

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

 Account appear under Use of Asset Disposal Account are ____________________.

  1. Original cost of the asset

  2. Sale price of the asset

  3. Value of the parts of the asset retained for use

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option D is the correct one.

  1. No proceeds, fully depreciated. Debit all accumulated depreciation and credit the fixed asset.
  2. Loss on sale. Debit cash for the amount received, debit all accumulated depreciation, debit the loss on sale of asset account, and credit the fixed asset.
  3. Gain on sale.


Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

Disposal of asset can be done________.

  1. at the end of its useful life

  2. during its useful life due to obsolescence

  3. during its useful life due to abnormal factor

  4. all of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

An asset can be disposed off due to the following reasons:

  • at the end of its useful life
  • during its useful life due to obsolescence
  • during its useful lie due to abnormal factors like technological changes. 

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

The amount incurred on asset additions/extensions is _____.

  1. Added to assets

  2. Deducted from assets

  3. Added to liabilities

  4. Deducted from liabilities
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Any addition done in fixed asset should be added to the asset a/c. Depreciation on addition has to be provided on pro-rata basis i.e. depending on the utilization of assets. For example, if an addition is done on 1st Oct 2017, than depreciation will be charged for 6 months only on the additions. 

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

What is debited in asset disposal account?

  1. Market value of asset

  2. Accumulated depreciation

  3. Original cost of asset being sold

  4. Loss on sale
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Asset disposal account is prepaed to ascertain profit or loss, when the asset is sold or dicarded. Asset disposal account is debited with original cost of asset disposed off.

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

Additional asset is Depreciated from _______.

  1. Beginning of the year

  2. Ending of the year

  3.  The addition made

  4.  The date addition proposed
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Depreciation is charged on the book value of the machine at the beginning of the year. If any new machinery purchased during the year, the depreciation is charged on pro rata basis for the months for which asset is used. 


For example, if a machine is purchased on 1/10/2017, than depreciation will be charged for 6 months i.e. from 1/10/2017 to 31/03/2018.

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

When a part of the asset is sold and provision for depreciation account exists, which new account is formed ?

  1. Depreciation account

  2. Use of Asset Disposal Account

  3. provision for depreciation account

  4. Asset account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option B is the correct one.

A disposal account is a gain or loss account that appears in the income statement, and in which is recorded the difference between the disposal proceeds and the net carrying amount of the fixed asset being disposed of.

Multiple choice accountancy depreciation accounting asset disposal account disposal of asset disposal of asset and any addition or extension to the existing asset

The balance of asset disposal account is transferred to __________.

  1. Trading account

  2. Profit and loss account

  3. Balance sheet

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Here the B option is right answer.

When the asset is sold at the end of its useful life, the sale proceeds should be credited the asset account. The profit or loss on sale or disposal of the assets is transferred to the P&L a/c.