Tag: factors for determining depreciation

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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 plant account repair comes on ______side.

  1. Debit

  2. Credit

  3. Either Debit or Credit

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

None of the above. 

Repairs and maintenance are expenses a business incurs to restore an asset to a previous operating condition or to keep an asset in its current operating condition. Under generally accepted accounting principles – GAAP  you must record repairs and maintenance expenses in your records and report them on your financial statements in the period in which they were incurred. 

Journal entry to record repairs is :

Repairs A/c        Dr.

     To Cash/ Bank/ Creditors for expense 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

Purchase cost of plant Rs.5,00,000, Installation cost Rs. 50,000 & Repair cost Rs. 3000 ,Original cost of Plant will be?

  1. Rs.5,00,000

  2. Rs5,50,000

  3. Rs.5,53,000

  4. Rs.5,47,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

All expenditure incurred on plant till the asset is ready for put to use, are considered as capital expenditure.  This includes installation cost,  freight incurred for bringing the asset to the location etc. 


Original Cost of the plant will be:
Cost of Plant                                           Rs.500000
Add: Installation Cost                             Rs. 50000
                                                                -------------------
Original Cost of Plant                            Rs.550000
                                                               -------------------

Repair cost of Rs.3000 is a revenue expenditure and to be debited to profit & loss 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

In plant account installation expenses comes on ______ side.

  1. Debit

  2. Credit

  3. Either debit or credit

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

The cost of installation must be added to the cost of assets itself. According to IFRS standard on PPE, the cost and incidental costs like installation cost to bring the asset into use must be measured and accounted for in order to determine the actual cost of any PPE. Hence you will debit Property, plant and equipment (PPE) and credit cash/ bank.

Remember the PPE must be debited under the correct asset category.

In this situation, the journal entry would be :

Plant A/c       Dr.

      To Bank 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

Give journal entry for:
Depreciation transferred to profit and loss account of $Rs.7500$.

  1. Profit and Loss A/c   Dr.  $7500$

    To Depreciation A/c  $7500$

  2. Profit and Loss A/c  Dr.  $7000$

    To Depreciation A/c  $7000$

  3. Depreciation A/c  Dr.  $7500$

    To Profit and Loss A/c  $7500$

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

Depreciation is a charge to profit & loss account. Every year an amount is charged as depreciation on each of the asset by passing the below entry:


Depreciation A/c                 Dr. $7500$
    To Asset A/c                                     $7500$

Depreciation amount has to be transferred to profit & loss account by making the below journal entry:

Profit & Loss A/c                  Dr. $7500$
   To Depreciation A/c                         $7500$

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 annual amount of depreciation charged every year  _______ under written down value method.

  1. Highest in earlier years and gets decline in later years

  2. Highest in earlier years and gets increases in later years

  3. lowest in earlier years and gets decline in later years

  4. Lowest in earlier years and gets increases in later years
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Under written down value of method, depreciation calculated at a fixed percentage on the original cost in the first year and on the written down value, in subsequent years of a fixed depreciable asset. Under this method, the rate of depreciation remains constant year after year whereas the amount of depreciation goes on decreasing.

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

Straight line method and written down value method are generally used for calculating ____________ amount in practice.

  1. Depreciation

  2. Appreciation

  3. Historical cost

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

There are two most commonly used method of depreciation i.e.,  Straight line method and Written down value method.

Under straight line method of depreciation, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each accounting period over the expected useful life of the asset.
Under the written down value method, depreiation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of a fixed depreciable asset is written off during each accounting period over the expected useful life of the asset. Under this method, the rate of depreciation remains constant year after year ehereas the amlount of depreciation goes on decreasing.

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

Under Straight line method depreciation is charged on the basis of ___________.

  1. Original Cost

  2. Cash Cost

  3. Both

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

Under straight line method of depreciation, a fixed and equal amount of deprecation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each accounting period over the expected useful life of 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

Under Written down value method the basis of charging depreciation is __________.

  1. Net book value

  2. Original cost

  3. Net Realisable Value

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

Under written down value of method, depreciation calculated at a fixed percentage on the original cost in the first year and on the written down value, in subsequent years of a fixed depreciable asset. Under this method, the rate of depreciation remains constant year after year whereas the amount of depreciation goes on decreasing.

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 annual amount of depreciation charged every year remains _______ under straight line method

  1. Fixed

  2. Changing

  3. Zero

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

Under straight line method of depreciation, a fixed and equal amount of deprecation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each accounting period over the expected useful life of 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

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.