Tag: accounting for depreciation

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Questions Related to accounting for depreciation

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

There are two types of arrangements for recording _________on fixed assets.

  1. Depreciation

  2. Appreciation

  3. Appraisal

  4. Undervaluation
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

There are two methods of reccording depreciation :

1. By charging to asset account
2. By creating provision for depreciation/ Accumulated Depreciation Account.

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

Original cost of asset : 80,000 scrap value : 10,000 Life of asset : 10 years
calculate annual depreciation ______.

  1. 7000

  2. 5000

  3. 8000

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

Depreciation has been defines as "the diminution in the utility or value of an asset, due to natural wear and tear, exhaustio of the subject matter, effluxion of time accident, etc. There are various methods of calcuating depreciation .

Formula for depreciation when scrap value is given and rate of depreciation is not given is:
Depreciation = (Original cost - Scrap value) / Useful life of asset 
In the given question,
Original cost of asset = Rs. 80000
Scrap value = Rs. 10000
useful life of asset = 10 Years
Depreciation = Rs. (80000 - 10000) / 10
Depreciation = Rs. 7000

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

Asset account continues to appear at its _____________ every year for entire life.

  1. Book value

  2. Written Down Value

  3. Original Cost

  4. None
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Option C is the Correct option.

Asset account continues to appear at its original cost year after year over its entire life; Depreciation is accumulated on a separate account instead of being adjusted into the asset account at the end of each accounting period.

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

Original cost of asset $800000$ 
Written down value : $500000$
Rate of depreciation : $10$%
Calculate depreciation under written down value.

  1. $50,000$

  2. $45,000$

  3. $55,000$

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

Depreciation under written down value method is calculated on the basis of written down vakue of asset.

Formula for charging depreciation under written down value method is:
Depreciation = Written doen value of assets * Rate of depreciation
Depreciation = Rs. 500000 * 10%
Depreciation = Rs.50000

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 amount realised at the end of working life of an asset ___________.

  1. Residual value

  2. Market price

  3. Original cost

  4. Written down value
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Every assets has its estimated life of working. After the life, the asset must be disposed off. On disposal, organization may receive some amount on sale of such asset. 

The value realized at the end of working life of an asset is called residual 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

Depreciation is charged on ____________ assets.

  1. Tangible fixed

  2. Current

  3. Floating

  4. Intangible
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Depreciation is defined as the reduction in the value of  fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a loss and debited to profit & loss account. 

Following journal entry is passed for depreciation:

Depreciation A/c                              Dr.
     To  Fixed Asset A/c 

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

By the amount of depreciation, the value of asset __________.

  1. decreases

  2. increases

  3. becomes zero

  4. remains costant
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Depreciation is defined as the reduction in the value of  fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a loss and debited to profit & loss account. 

Following journal entry is passed for depreciation:

Depreciation A/c                              Dr.
     To Asset A/c 

By the amount of depreciation, the value of fixed asset decreases. 

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 is charged only on fixed asset.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence, expiration of legal rights or any other cause.

An analysis of definition given above highlights the characteristics of depreciation as follows:
  1. It is related to depreciable fixed assets only.
  2. It is a fall in the book value of depreciable fixed asset.
  3. It is a permanent decrease in the book value of an asset.

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.