Tag: accounting treatment for depreciation

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Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Provisions are created for _________.

  1. Uncertain income/gain

  2. Uncertain expenses/losses

  3. Certain expenses/losses

  4. Certain income/gain
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Provisions are created for the anticipated losses/expenses or for probable amount of liability based on certain assumption.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

At the time of Disposal of Asset, what will be journal entry for provision for depreciation account?

  1. Asset A/c Dr.

    To Profit and Loss A/c

  2. Provision for depreciation A/c Dr.

    To Asset A/c

  3. Asset A/c Dr.

    To Provision for depreciation A/c

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

When the depreciation is charged on the asset by creating the provision for depreciation account, in such case the assets are shown in the balance sheet on its original value against which provision for depreciation account is created. 

If the asset is disposed off, the balance of provision for depreciation is transferred to asset account by passing the below journal entry:

Provision for Depreciation A/c               Dr.
        To Asset A/c 

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Give journal entries:
For recording purchase of asset.

  1. Asset A/c Dr.

    To Bank A/c

  2. Asset A/c Dr.

    To Vendor A/c

  3. Asset A/c Dr.

    To Buyer A/c

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

As per the golden rules of accounting for real account, what comes in debit and what goes out is credit.

In light of above rule, journal entry for purchase of asset should be:
1. Asset A/c     Dr.
        To Bank A/c
(Being asset purchased for cash)
2. Asset A/c    Dr.
        To Vendor/ creditor A/c
(Being Asset purchased on credit)

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

_____________ is a provision.

  1. Provision for depreciation

  2. Provision for taxation

  3. Provision for bad and doubtful debts

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

Provisions are created for the anticipated losses/expense  or for probable amount of liability based on certain assumption. Following can be stated as provision:

1) Provision for depreciation
2) Provision for taxation
3) Provision for bad & doubtful debts

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Under Provision method depreciation charged is credited to _____________.

  1. Provision for depreciation A/c

  2. Provision for Tax A/c

  3. Provision For cost A/c

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

Option A is correct. 

Under provision method, assets are maintained at its original cost in the ledger account. Depreciation charged is recorded in a separate account named 'provision for depreciation account.' Also known as 'Accumulated Depreciation Account'. Journal entry to record the depreciation is as follows :- 
Profit & Loss A/c Dr. 
    To Provision For Depreciation A/c.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Net Block ( Book Value ) = Gross Block (cost) - __________.

  1. Deprecation Till date

  2. Value till date

  3. Expenses till date

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

Option A is correct One.

Gross Block Means - Total Value of Asset ( Its Original Purchase price+any cap ex)

             Net Block Means - Original Value Of Asset( As Above) - Till Date Charged Depreciation 

Normally "Accumulated depreciation account " is maintained which is credited by the depreciation charged each year on the asset of the company , Once you debit current period depreciation , such depreciation shall be transferred to Accumulated Depreciation Account.


Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

_________ is show on Liabilities side or by way of deduction from the original cost of asset.

  1. Provision for Depreciation

  2. Provision for cost

  3. Provision for Asset

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

Under provision for depreciation method of recording depreciation, Fixed asset is shown at its original cost on the asset side in balance sheet and depreciation till date is accumulated in provision for depreciatiion account which is shown on liabilities side in balance sheet.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

When operating profit Rs. $62,400$, provision for depreciation Rs. $10,000$, Provision for taxation Rs. $30,000$, Refund of tax Rs. $400$, Provision for doubtful debts Rs. $1000$, Office of admin. expenses Rs. $50,000$ then the amount of funds from operation is__________.

  1. Rs. $62,400$

  2. Rs. $1,02,400$

  3. Rs. $72,400$

  4. Rs. $72,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Funds from operations
$=$ Operating Profit $+$ Provision for Dep,
$=$ Rs. $62,400+$ Rs. $10,000$
$=$ Rs. $72,400$.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

When R.D.D is created, __________ is credited.

  1. R.D.D A/c

  2. Sales A/c

  3. Bad debts A/c

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

R.D.D. means reserves for doubtful debts. 

R.D.D. is created for the anticipated bad debts based on the historical data. The reserve is creating out of profit against which following journal entry will be passed:

Profit & Loss A/c                                      Dr.
   To Reserves for Doubtful Debts.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Assets continues to show on __________ when provision for depreciation A/c is maintained.

  1. Book Value

  2. Original cost

  3. Paid Cost

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

Under provision for depreciation method of recording depreciation, Fixed asset is shown at its original cost on the asset side in balance sheet and depreciation till date is accumulated in provision for depreciatiion account which is shown on liabilities side in balance sheet.