Tag: depreciation and causes of depreciation

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

Depletion term is used in case of intangible assets.

  1. True

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

The term 'Depletion' refers to the physical deterioration by the exhaustion of natural resources (ore-deposits in mines, oil wells, quarries, timber stands etc.)

For the purpose of intangible assets, the term 'Amortization' is used. It refers to the economic deterioration by the expiation of intangible assets such as patents, goodwill etc. 

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

Double-declining method is often used in ________.

  1. Singapore

  2. South Africa

  3. Japan

  4. India
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The double-declining balance method is a common accounting practice used in various jurisdictions, including India, to accelerate depreciation. While it is used globally, it is specifically recognized in Indian accounting standards and tax practices.

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

Depreciation is to be calculated from the date of _____________________.

  1. Asset put to use

  2. Purchase order of asset

  3. Receipt of asset at business premise

  4. Invoice of assets.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The expense is recognized and reported when the asset is placed into use and is calculated for each accounting period and reported under Accumulated Depreciation on the balance sheet and Depreciation Expense on the income statement. The amount reduces both the asset's value and the accounting period's income.

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

Which of the following is Depleted?

  1. Furniture

  2. Goodwill

  3. Machinery

  4. Coal Mines
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Depreciation and Depletion: In fact, the term 'depletion' is used in respect of the extraction of natural resources like quarries, and mines, that reduces the availability of quantity of the material or asset. Depreciation, as stated earlier, is a loss in value of an asset generally arising on account of wear and tear.

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

Depletion method depreciation is normally applied in case of _________ assets.

  1. Intangible

  2. Tangible

  3. Wasting

  4. Current
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Wasting Assets are the asset that has a limited life and thus decreases in value (depreciates) over time.

The term depletion is used in the context of extraction of natural resources like mines, quarries, etc. that reduces the availability of the quantity of the material or asset.

Hence Depletion method depreciation is normally applied in case of wasting assets.

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

Which one of the following depreciation methods is most suitable for a coal mine?

  1. Diminishing balance method

  2. Depletion method

  3. Fixed instalment method

  4. Sum of year's digits method
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Depletion method of depreciation is most suitable for coal mine. This method is specially used for those assets which deplete with use. The cost of the asset is divided by total workable deposits. For example :

If a mine has 2 lakh tons of coal and the value of mine is Rs. 5 lakhs, each ton of coal will cost Rs. 2½. The quantity of coal taken out of the mine in a period will be multiplied by the rate per ton, i.e., Rs. 2½ and the resultant figure will be the amount of depreciation.

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

Match List-I with List-II and select the correct answer using the codes given the lists.

List-I List-II
I. Amortisation (a) Diminition in the life of the assets due to excessive use
II. Depreciation (b) Exhaustion of natural resource
III. Depletion (c) Expiration of tangible assets
IV. Obsolescence (d) Expiration of intangible assets
(e) Economic deterioration due to improved inventions

  1. I-(a), II-(b), III-(c), IV-(d)

  2. I-(a), II-(b), III-(d), IV-(e)

  3. I-(e), II-(b), III-(c), IV-(d)

  4. I-(d), II-(c), III-(b), IV-(e)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

1.    Amortization is used for expiration of intangible assets.

2.   Depreciation is used for expiration of tangible assets.
3.    Depletion allocates the cost of associated with using an assets , in case reduction of a natural resources.
4.   Obsolescence means economic deterioration due to improved invention i.e older version has passed and a new version was already on the market. So, here the D option is right answer.
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Multiple choice depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

Match List-I with List-II and select the correct answer using the codes given the lists.

List-I List-II
I. Uncertain liability (a) Amortisation
II. Expiry of tangible asset (b) Long-term liability
III. Basis for all valuations in the balance sheet (c) Research and development
IV. Accounting standard-As-$8$ (d) Estimated obligation
(e) Conservation convention

  1. I-(e), II-(a), III-(b), IV-(c)

  2. I-(d), II-(c), III-(e), IV-(a)

  3. I-(e), II-(c), III-(d), IV-(a)

  4. I-(d), II-(a), III-(e), IV-(c)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option D is the Correct one.

AS 8 - Accounting for Research & Development
Amortization: the action or process of gradually writing off the initial cost of an asset.

Provisions are present obligations or liabilities but with uncertain amounts. The amounts can only be measured with a substantial estimation. Contingent liabilities are possible obligations.

This accounting convention is generally expressed as to “anticipate all the future losses "

This convention generally applies to the valuation of current assets as they are basis for preparing financial statements to facilitate comparison of financial statements on period to period basis.

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

__________ reduces the availability of the quantity of the material or asset.

  1. Depletion

  2. Amortisation

  3. Depreciation

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

Depletion.

Depletion is an accounting and tax concept used most often in mining, timber, petroleum, or other similar industries. The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Depletion is similar to depreciation in that it is a cost recovery system for accounting and tax reporting.

Depletion for both accounting purposes and united states tax purposes, is a method of recording the gradual expense or use of natural resources over time. Depletion is using up of natural resources by mining, drilling, or felling.