Tag: meaning and characteristics of provisions

Questions Related to meaning and characteristics of provisions

It must be noted that the amount of provision for expenses and loss is a charge against the revenue of the __________ year.

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

  1. Current

  2. Next

  3. Previous

  4. None

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Correct Option: A
Explanation:
Current.
Provision is an amount set aside out of current earnings considered necessary to provide for all expenses and losses that are expected to arise out of transactions entered into, during the accounting period. Provision is made following the prudence concept of accounting which holds "provide for anticipated expense and losses but do not provide for anticipated incomes."

Provision for Doubtful debts are also called ______________.

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

  1. Provision for Bad and Doubtful Debts

  2. Provision for Losses

  3. Provision for repayment

  4. None

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Correct Option: A
Explanation:

Option A is correct. The provision for doubtful debts is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. It is not provision for losses because It is for losses that business may occur but it is not confirmed yet. It is doubtful. Also it is not provision for repayment because business has to receive the amount from debtors. Provision for Doubtful debts are also known as Provision for Bad and doubtful debts. 

_________ is created for the possible loss which may arise by non payment of debts by debtors.

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

  1. Provision for Doubtful Debts

  2. Provision for Discount on Debtors

  3. Bad-debts on debtors

  4. None

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Correct Option: A
Explanation:

A provision for doubtful debts is created to cover the loss of possible bad debts by means of a predetermined percentage of net debtors (i.e.., debtors less bad debts) with a view to bring in a certain element of certainty in the amount of bad debts charged for each accounting period.

__________ is accumulated in a separate account instead of being adjusted in asset account under provision method.

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

  1. Cost

  2. Depreciation

  3. Expenses

  4. None

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Correct Option: B
Explanation:

When the depreciation is charged by creating accumulated depreciation account, following journal entry is passed:


Depreciation A/c                                 Dr.
   To Accumulated Depreciation A/c 

Under accumulated depreciation method, a separate account is created for accumulation of depreciation instead of being adjusted in asset a/c. 

Depreciation Account is Transferred to ___________account at the end of accounting year.

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

  1. Trading Account

  2. Asset Account

  3. Profit and loss

  4. None

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Correct Option: C
Explanation:

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence expiration of legal rights or any other cause. Depreciation does not result in cash out flow. Although, depreciation is a non cash expenditure, it is transfer to profit and loss A/c at the year end.

Depreciation is charged to ___________ account.

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

  1. Expense

  2. Profit and loss

  3. Trading

  4. None of the above

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Correct Option: B
Explanation:

Depreciation is the permanent and continuous decrease in the book value of a depreciable fixed asset due to use, effluxion of time, obsolescence expiration of legal rights or any other cause. Depreciation does not result in cash out flow. Although, depreciation is a non cash expenditure, it is transfer to profit and loss A/c at the year end.

When separate provision for depreciation A/c is not maintained the depreciation is charged directly to __________.

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

  1. Asset A/c credit side

  2. Asset A/c Debit side

  3. Liabilities side

  4. None of the Above

Show answer
Correct Option: A
Explanation:

When the depreciation is charged by creating accumulated depreciation account, following journal entry is passed:


Depreciation A/c                                 Dr.
   To Accumulated Depreciation A/c 

Under accumulated depreciation method, a separate account is created for accumulation of depreciation instead of being adjusted in asset a/c.

When separate provision for depreciation a/c is not maintained, the depreciation is charged directly to asset a/c for which following journal entry will be passed: 

Depreciation A/c                              Dr. 
      To Assets A/c 

When depreciation account is maintained annual depreciation is charged to _________.

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

  1. Profit and loss A/c

  2. Asset A/c

  3. Trading A/c

  4. None of the Above

Show answer
Correct Option: B
Explanation:

Option B is correct One.
The accumulated depreciation account is an asset account with a credit balance (also known as a contra asset account); this means that it appears on the balance sheet as a reduction from the gross amount of fixed assets reported.

When Provision for depreciation is maintain the total accumulated depreciation is only transferred to asset during its ___________.

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

  1. Disposal

  2. Purchases

  3. Extension

  4. None

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Correct Option: A

For the year 20 X 1 and 20 X 2, the following figures have been arrived at :
Increase in notes payable =  Rs.28,000
Decrease in provision for taxes = Rs.2,500
Increase in creditors = Rs.76,500
Decrease in provision for dividends = Rs.40,000
The change in NWC (Net Working Capital) is _________________.

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

  1. Decrease by Rs.86,000

  2. Decrease by Rs.62,000

  3. Decrease by Rs.11,000

  4. Increase by Rs.11,000

  5. Increase by Rs.62,000

Show answer
Correct Option: B
Explanation:

Net working capital  = current assets - current liabilities
Increase in notes payable and increase in creditors will increase current liabilities.
Decrease in provision for taxes and dividends will increase current assets.
Thus change in net working capital = (2500 + 40000) - (28000 + 76500) = -62000
i.e. there is decrease in net working capital by Rs.62,000.