Tag: depreciation and causes of depreciation

Quizzes (0) Questions (76)

Questions Related to depreciation and causes of depreciation

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

In 2012, S Ltd. acquired a machine at a cost of Rs. $50,000$. The Production Units for first three years are $15,000$; $20,000$ and $25,000$ respectively. Depreciation for the third year = ?

  1. Rs. $31,257$

  2. Rs. $18,753$

  3. Rs. $20,833$

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

Under the units of production method, depreciation = (Cost / Total Units) * Units in year. Total units = 15000 + 20000 + 25000 = 60000. Third year depreciation = (50000 / 60000) * 25000 = 20833.33.

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

Sum of years digits method is _________ type of depreciation providing method.

  1. Uniform charge method

  2. Declining charge method

  3. Depletion method

  4. Group depreciation method
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The sum-of-the-years-digits method provides higher depreciation in the early years and lower in the later years, which classifies it as a declining charge method.

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

In annuity method interest is calculated on ________.

  1. the value of the asset at the time of purchase

  2. the value of the asset at the beginning of each year

  3. the value of asset as expected at the end value of asset

  4. Both a & b
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In the annuity method, the asset is treated as an investment. Interest is calculated on the book value of the asset at the beginning of each year to determine the annual charge.

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

When depreciation fund account closes, it transfers its balance to ___________.

  1. Sinking fund account

  2. New asset account

  3. Old asset account

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

When the depreciation fund (or sinking fund) is used to replace an asset, the accumulated balance in the fund is transferred to the asset account to write off the old asset's cost.

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

Change in depreciation method requires ________.

  1. change in consistency

  2. an explanatory paragraph

  3. Both a & b

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

Changing a depreciation method is a change in accounting estimate or policy. It requires disclosure in the financial statements, often through an explanatory paragraph, to maintain transparency regarding the change in consistency.

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

For changing the method of calculation of depreciation an enterprise should not ___________.

  1. calculate the value of asset by old method on the date of change

  2. calculate the depreciation of the past period of asset by new method

  3. calculate the depreciation of past 

  4. find out the cost value of asset
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When changing a depreciation method, one should not calculate the value of the asset by the old method on the date of change as if the new method never existed; instead, the change is usually applied prospectively or retrospectively depending on the standard.

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

Depreciation fund method is also known as ________.

  1. Sinking fund method

  2. Annuity method

  3. Sum of years digits method

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

The depreciation fund method is commonly referred to as the sinking fund method because the annual amounts set aside are invested to accumulate interest until the asset is replaced.

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

The method is specially suited to natural resources (mines, quarries, sand, pits etc.) is said to be ________.

  1. annuity method

  2. depletion method

  3. revaluation method

  4. sum of digits method
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The depletion method is specifically designed for natural resources where the asset is physically exhausted through extraction.