Tag: meaning and characteristics of provisions

Questions Related to meaning and characteristics of provisions

Provisions are created for _________.

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

  1. Uncertain income/gain

  2. Uncertain expenses/losses

  3. Certain expenses/losses

  4. Certain income/gain

Show answer
Correct Option: B
Explanation:

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

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

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions 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

Show answer
Correct Option: B
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 

Give journal entries:
For recording purchase of asset.

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

  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)

Show answer
Correct Option: D
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)

_____________ is a provision.

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

  1. Provision for depreciation

  2. Provision for taxation

  3. Provision for bad and doubtful debts

  4. All of the above

Show answer
Correct Option: D
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

Under Provision method depreciation charged is credited to _____________.

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

  1. Provision for depreciation A/c

  2. Provision for Tax A/c

  3. Provision For cost A/c

  4. None

Show answer
Correct Option: A
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.

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

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

  1. Deprecation Till date

  2. Value till date

  3. Expenses till date

  4. None of the Above

Show answer
Correct Option: A
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.


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

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

  1. Provision for Depreciation

  2. Provision for cost

  3. Provision for Asset

  4. None

Show answer
Correct Option: A
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.

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__________.

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

  1. Rs. $62,400$

  2. Rs. $1,02,400$

  3. Rs. $72,400$

  4. Rs. $72,000$

Show answer
Correct Option: C
Explanation:

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

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

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

  1. R.D.D A/c

  2. Sales A/c

  3. Bad debts A/c

  4. None of the above

Show answer
Correct Option: A
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.

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

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

  1. Book Value

  2. Original cost

  3. Paid Cost

  4. None

Show answer
Correct Option: A
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.