Tag: accounting for depreciation

Questions Related to accounting for depreciation

Depreciation fund method is designed 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. Only provide for depreciation of an asset

  2. Provide for depreciation and also to accumulate the amount for its replacement

  3. Provide for the payment of some liability

  4. Providing for future loss

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Correct Option: B
Explanation:

Option b is the correct one.

in this method we will charge the depreciation every year and accumulate it for the purchasing new assets.for that accumulated depreciation we will keep as specific fund.

In the case of a particular depreciation method, the periodic depreciation is smaller than the asset's actual depreciation cost. The annual net incidence on profit and loss account remains constant due to incorporation of only fixed depreciation. The periodic depreciation is not recorded through the asset account. The depreciation method used in this case 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. Sinking fund method

  2. Diminishing balance method

  3. Annuity method

  4. Sum-of-years digits method

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Correct Option: A

For using the equal installment method for depreciation the relevant formula 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. Annual charge against profit $=\cfrac { Original\quad cost-Residual\quad value }{ Number\quad of\quad years\quad of\quad active\quad life } $

  2. Annual charge against profit $=\cfrac { Number\quad of\quad years\quad of\quad active\quad life }{ Original\quad cost-Residual\quad value } $

  3. Annual charge against profit $=\cfrac { Original\quad cost-Residual\quad value }{ Estimated\quad number\quad of\quad years\quad remaining } $

  4. Annual charge against profit $=\cfrac { Estimated\quad number\quad of\quad years\quad remaining }{ Original\quad cost-Residual\quad value } $

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Correct Option: A
Explanation:

Equal installment Method:

In this method a fixed or equal amount of depreciation written off as depreciation at the end of each year, during the life time of the asset. Thus the book value of the asset will become zero or its residual value. This method is suitable for patent, furniture, short-lease etc.

The amount of depreciation may be calculated as :

Amount Charge against profit = (original cost – Residual value)/Number of years of active life

 

For providing depreciation on hand tools, the appropriate method of depreciation 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. Replacement method

  2. Revaluation method

  3. Depletion method

  4. Annuity method

Show answer
Correct Option: B
Explanation:

Revaluation method.

Under revaluation method of depreciation, the assets are revalued each year. The method is normally adapted to charge depreciation on numerous inexpensive fixed assets like small tools, livestock, patents, hand tools,copy rights and other assets of such nature which are constantly changing and their period of life is most uncertain. Accordingly periodic inventory is taken of usable items and valued at cost irrespective of ruling prices. Excess of the opening over the closing inventory thus gives the periodic depreciation expenses.

On August 01, 2002, a travel company bought four vans costing Rs. $2,40,000$. The company expected to fetch a scrap value of $25$% of the cost price of the vehicles after ten years. The vehicles were depreciated under the fixed installment method up to March 31, 2005. With effect from April 01, 2005, the company decided to introduce the diminishing balance method of depreciation @$30$% p.a instead of the fixed installment method. The company sold one of the vans at Rs. $1,40,000$ on March 31, 2005. The rate of depreciation charged up to March 31, 2005, was

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. $10.0$%

  2. $9.0$%

  3. $8.5$%

  4. $7.5$%

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Correct Option: D

The cost of a machinery having a life span of $5$ years is $Rs. 1,00,000$. It has a scrap value of $Rs. 10,000$. The amount of depreciation under the sum of digits method in the first year will be:

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. $Rs. 16000$

  2. $Rs. 18000$

  3. $Rs. 30000$

  4. $Rs. 25000$

Show answer
Correct Option: C
Explanation:

Using Sum of Digits method:

Adding number of years:1+2+3+4+5=15
Therefore, ($Rs.1,00,000$-$Rs.10,000$) X remaining number of years i.e 5
=$90,000$ X $5$= $Rs.4,50,000$  divide by the sum of digits of the useful life i.e 15=$Rs.4,50,000$/$15$=$Rs.30,000$

'Depreciable amount of depreciable assets 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. historical cost

  2. original cost

  3. historical cost less than residual value

  4. replacement cost

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Correct Option: C

Accumulated depreciation should be shown on the statement of financial position _____.

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. As a deduction from current assets

  2. As part of owner's equity

  3. As a current liability

  4. As a deduction from the cost of corresponding fixed assets

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Correct Option: D

The book value of an asset is defined as ___________.

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. cost minus salvage value

  2. cost minus accumulated depreciation

  3. cost minus salvage value minus accumulated depreciation

  4. estimated fair market value

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Correct Option: B
Explanation:

Book value of an asset is 'carrying' value of an asset in the balance sheet which is calculated after deducting accumulated depreciation, amortization and impairment on asset.

Salvage Value is considered for determining an estimated amount of depreciation and not the book value of the asset directly.
Fair Value of an asset is an estimated amount any buyer is willing to pay for the asset in the market (unrelated party).

While preparing final account, to provide depreciation which of the following adjustment entry will be passed?

Fixed Assets A/cTo Depreciation A/c Dr.
Depreciation A/cTo Profit & Loss A/c Dr.
Fixed Assets A/cTo Profit & Loss A/c Dr.
Depreciation A/cTo Fixed Assets A/c Dr.
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. A

  2. B

  3. C

  4. D

Show answer
Correct Option: D