Tag: meaning and characteristics of provisions

Questions Related to meaning and characteristics of provisions

Consider the following statement:
1. According to the provisions of FEMA, $1999$, cash in the form of coins and bank notes are included in 'Currency Notes'
2. According to the FEMA's provisions, ATM cards are not included in currency.
3. All 'money orders' can be treated as 'currency'.
Which of the above statement/s is/ are not true?

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

  1. Only $1$

  2. Only $2$

  3. $1$ and $3$

  4. Only $3$

Show answer
Correct Option: B
Explanation:

Option B is the correct one.

Currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, traveler's cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank.

Currency notes” means and includes cash in the form of coins and banknotes.



Accumulated Deprecation is _________  nature account.

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

  1. Real

  2. Personal

  3. Nominal

  4. None

Show answer
Correct Option: A
Explanation:

Accumulated depreciation a/c is an asset account with a credit balance ( also known as contra asset a/c ) ., this means that it appears on the balance sheet as a reduction from the gross amount of fixed assets reported. So acumulated dep. a/c is a real a/c.

Depreciation is _________ nature Account.

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

  1. Real

  2. Personal

  3. Nominal

  4. None

Show answer
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. It is a non cash expenditure. As per the accounting rules, all incomes and gains and expenses and profits are included in nominal account.

Net surplus/deficiency on disposal/replacement/discarding of an asset is credited/charged to ___________.

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

  1. Trading a/c

  2. Capital Reserve a/c

  3. Profit and loss a/c

  4. Revaluation a/c

Show answer
Correct Option: C
Explanation:

Fixed assets are having its estimated working life too. Hence at the end of its working life or due to any other reasons, assets are being sold. 

The net surplus/ deficiency on such sale/disposal of an asset should be credited or debited to the profit & loss account. 
If the sale proceed exceeds the book value of the asset, there will be a profit which has to be credited to profit & loss account. 
If the sale proceed is less than the book value of asset, there will be a loss which need to be debited to profit & loss account. 

A provision is a/an ___________.

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

  1. appropriation of profit

  2. charge on the profit

  3. investment

  4. current asset

Show answer
Correct Option: B
Explanation:

Provisions are created against the anticipated losses and the expenses which are due but not paid for. 

Provisions are charge against the profit and to be debited to profit & loss account of the current year for the revenue is recognized. 

___________ is/are required to be disclosed as per AS-$6$.

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

  1. Depreciation method

  2. Total cost of each class of assets.

  3. Total depreciation for the period of each class of asset

  4. All the three

Show answer
Correct Option: D
Explanation:

The depreciation methods used, the total depreciation for the period for each class of assets, the gross amount of each class of depreciable assets and the related accumulated depreciation are disclosed in the financial statements along with the disclosure of other accounting policies. A change in the method of depreciation is treated as a change in an accounting policy and is disclosed accordingly.

The annual depreciation charge is debited to ___________.

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

  1. concerned Assets

  2. gross block a/c

  3. depreciation a/c

  4. profit and loss a/c

Show answer
Correct Option: A
Explanation:

Annual depreciation is the amount of depreciation charged against an asset or group of assets over the course of a financial year. hence, the annual depreciation charge is debited to concerned assets a/c.

"Any amount written off or retained by way of providing for depreciation, renewals or diminution in the value of assets or retained by way of providing for any known liability" is called ____________.

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

  1. Provisions

  2. Reserve

  3. Fund

  4. Secret Reserve

Show answer
Correct Option: A
Explanation:

The companies act 1956, States that  "Provision usually means any amount Written off or retained by the way of providing depreciation renewal or diminution in the value of assets or retained by the way of providing for any known liability of which the amount cannot be determined with substantial accuracy.

Which of the following A/c would not be transferred to profit and loss A/c?

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

  1. Bad debts

  2. Discount allowed

  3. Accumulated depreciation A/c

  4. Discount received a/c

Show answer
Correct Option: C
Explanation:

Option C is the correct one.

Accumulated depreciation appears either shown as a deduction from the asset or the same may appear in the liability side of the Balance Sheet.and other two items are expenses (bad debts & Discount allowed) so it would be debited to P&L a/c and another Discount received credited to P& L account.as income for the year.

Provision is created for ________.

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

  1. known liabilities

  2. unknown liabilities

  3. strengthening financial position

  4. distribution of dividend

Show answer
Correct Option: A
Explanation:

b"A provision is an amount set aside from a company's profit to cover an expected liability  or a decrease in the value of an asset,even though the specific amount might be unknown. A provision  is not a form of saving: instead, it is a recognition of an upcoming liability."