Tag: accounting for depreciation

Questions Related to accounting for depreciation

There are two types of arrangements for recording _________on fixed assets.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. Depreciation

  2. Appreciation

  3. Appraisal

  4. Undervaluation

Show answer
Correct Option: A
Explanation:

There are two methods of reccording depreciation :

1. By charging to asset account
2. By creating provision for depreciation/ Accumulated Depreciation Account.

Original cost of asset : 80,000 scrap value : 10,000 Life of asset : 10 years
calculate annual depreciation ______.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. 7000

  2. 5000

  3. 8000

  4. None

Show answer
Correct Option: A
Explanation:

Depreciation has been defines as "the diminution in the utility or value of an asset, due to natural wear and tear, exhaustio of the subject matter, effluxion of time accident, etc. There are various methods of calcuating depreciation .

Formula for depreciation when scrap value is given and rate of depreciation is not given is:
Depreciation = (Original cost - Scrap value) / Useful life of asset 
In the given question,
Original cost of asset = Rs. 80000
Scrap value = Rs. 10000
useful life of asset = 10 Years
Depreciation = Rs. (80000 - 10000) / 10
Depreciation = Rs. 7000

Asset account continues to appear at its _____________ every year for entire life.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. Book value

  2. Written Down Value

  3. Original Cost

  4. None

Show answer
Correct Option: C
Explanation:

Option C is the Correct option.

Asset account continues to appear at its original cost year after year over its entire life; Depreciation is accumulated on a separate account instead of being adjusted into the asset account at the end of each accounting period.

Original cost of asset $800000$ 
Written down value : $500000$
Rate of depreciation : $10$%
Calculate depreciation under written down value.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. $50,000$

  2. $45,000$

  3. $55,000$

  4. None of these

Show answer
Correct Option: A
Explanation:

Depreciation under written down value method is calculated on the basis of written down vakue of asset.

Formula for charging depreciation under written down value method is:
Depreciation = Written doen value of assets * Rate of depreciation
Depreciation = Rs. 500000 * 10%
Depreciation = Rs.50000

The amount realised at the end of working life of an asset ___________.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. Residual value

  2. Market price

  3. Original cost

  4. Written down value

Show answer
Correct Option: A
Explanation:

Every assets has its estimated life of working. After the life, the asset must be disposed off. On disposal, organization may receive some amount on sale of such asset. 

The value realized at the end of working life of an asset is called residual value. 

Depreciation is charged on ____________ assets.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. Tangible fixed

  2. Current

  3. Floating

  4. Intangible

Show answer
Correct Option: A
Explanation:

Depreciation is defined as the reduction in the value of  fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a loss and debited to profit & loss account. 

Following journal entry is passed for depreciation:

Depreciation A/c                              Dr.
     To  Fixed Asset A/c 

By the amount of depreciation, the value of asset __________.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. decreases

  2. increases

  3. becomes zero

  4. remains costant

Show answer
Correct Option: A
Explanation:

Depreciation is defined as the reduction in the value of  fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a loss and debited to profit & loss account. 

Following journal entry is passed for depreciation:

Depreciation A/c                              Dr.
     To Asset A/c 

By the amount of depreciation, the value of fixed asset decreases. 

Depreciation is charged only on fixed asset.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. True

  2. False

Show answer
Correct Option: A
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.

An analysis of definition given above highlights the characteristics of depreciation as follows:
  1. It is related to depreciable fixed assets only.
  2. It is a fall in the book value of depreciable fixed asset.
  3. It is a permanent decrease in the book value of an asset.

In case there is revision in estimated useful life of a depreciable asset, the remaining unamortized amount is charged to __________.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. remaining useful life

  2. written off in the current year as current charges

  3. written off in the current year as prior period adjustment

  4. treated as deferred revenue expenditure to be written off in $3$ years

Show answer
Correct Option: A
Explanation:

In case the useful life of the asset is changed, the amortised amount should be charged to the asset over the revised remaining estimated useful life of the asset. Such a revision should be treated as change in accounting estimates.  

On $1-1-2014$, a company acquired a car for Rs. $350,000$ on instalment basis and paid Rs. $1,50,000$ as down payment whose cash price was Rs. $3,00,000$. During $2014$, one instalment of Rs. $50,000$ (including Rs. $15,000$ interest) was paid. The amount of depreciation for the year $2016$ at $10\%$ on SLM is ___________.

book keeping and accountancy accounting for depreciation factors for determining depreciation factors of depreciation need for depreciation and the factors affecting the amount of depreciation

  1. $Rs.35,000$

  2. $Rs.20,000$

  3. $Rs.30,000$

  4. $Rs.18,500$

Show answer
Correct Option: C
Explanation:

If anything is purchased on installment basis, it comprises of interest expense in the total cost.

Here, the cash price of the car is $Rs.3,00,000$ whereas company acquired it at $Rs.3,50,000$ which clearly indicates $Rs.50,000$ is paid towards interest expense and interest expense can not be capitalized.
Therefore, Depreciation is calculated on the actual price of the car i.e. $Rs.3,00,000$ X $10$ %= $Rs.30,000$ on SLM basis.