Tag: factors for determining depreciation

Questions Related to factors for determining depreciation

An additional purchase of Rs. 2000 was made for a machine on 10th October. Under straight line method, under Income tax Act, 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.  will be done for half of the year

  2. will be done from the beginning of the year

  3. Both a & b

  4. None of the above

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Correct Option: A
Explanation:

Depreciation as per Income tax is calculated in a different manner than what is calculated under Companies Act.In the given case, the machine has been added after the first six month from the beginning of the financial year. As per the income tax act, if a machine is added after first six months, depreciation is calculated at 50% of the amount and at a rate specified by the act.

(Note:Half of the year or 50% is one and the same)

Depreciation does not depend on fluctuations 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. Market value of asset

  2. Cost of price of asset

  3. Scrap value of asset

  4. None of these

Show answer
Correct Option: A

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.

Show answer
Correct Option: D
Explanation:

Understand the relationship between accumulated depreciation and depreciation expense and learn how each is accounted for on financial statements are the allocated portion of the cost of a company's fixed assets that are appropriate for the Typical depreciation methods can include straight line, 

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.

Show answer
Correct Option: B
Explanation:

Book value refers to the 'carrying value' of the asset in the balance sheet as on date.

Depreciation is a charge against the asset over a period of time.
To arrive at 'book value' of asset, accumulated depreciation has to be deducted from the cost, this gives a true and fair of balance sheet which comprises of 'Assets' and 'Liabilities'.

A change in accounting policy e.g. change in method of depreciation is justified -

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. To comply with accounting standard

  2. To ensure more appropriate presentation of the financial statement of the enterprise

  3. To comply with law

  4. All of the above

Show answer
Correct Option: D
Explanation:

Accounting policies are accounting principles and must be applied consistently.

However due to the given reasons changes must be made in the accounting policies to promote a better comparability, enhance reliability and understanding of the financial statements of the entity.

In 2012, S.Ltd. acquired a mine at a cost of Rs 5,00,000. The estimated reserve of minerals is  50,00,000 tonnes of which 80% is expected to be realized. The first three years raisings are 1,50,000 : 2,00,000 & 2,50,000 tonnes, respectively. Depreciation for the third year=?

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$31,250$

  2. Rs.$18,750$

  3. Rs.$25,000$

  4. None of the above

Show answer
Correct Option: A
Explanation:
Depreciation for the 3rd year = Cost of the mine
                                                     --------------------------- x Revenue of the 3rd year 
                                                      total revenue to be realised 
                                                  = 5,00,000 
                                                    --------------- x 2,50,000
                                                    40,00,000
                                                 = Rs-31,250. 

Purchase Price of Machine Rs. 80,000, Installation Charges Rs. 20,000, Residual Value Rs. 40,960, Useful life 4 years, the rate of depreciation under WDV Method 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. 25%

  2. 20%

  3. 14.76%

  4. None of these

Show answer
Correct Option: B
Explanation:

Here , formula for WDV is - deprecciation rate = 100 * (1-n√s/c)

where n = number of years , s = salvage value , c = cost of asset
=[1-4√40960/100000] * 100
= [1-4√0.4096] * 100
= [1-.80]*100
=.20*100
=20

Date of Purchase 1st July, Purchase Price of Machine Rs. 1,40,000, Installation charges Rs. 60,000, Residual Value Rs. 81,920, Accounting year -Financial year, Date when Machine was put to use- 1st Oct, the depreciation under SLM for the first year Rs. 14,760.
The useful life of the Machine 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. 6 years

  2. 5 years

  3. 4 years

  4. None of these

Show answer
Correct Option: C
Explanation:
Depreciation(SLM basis) = Depreciable value - Residual value 
                                           -----------------------------------------------------
                                                            Useful life. 
                         14,790      = 1,00,000 - 40,960
                                            ---------------------------- 
                                                    no. of years 
                                          = 4 Years. 

Purchase Price of machine 1,50,000, Installation charges Rs. 50,000, Residual Value Rs. 81,920. The annual depreciation under SLM is Rs. 29,520. The useful life of machine 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. 6 years

  2. 5 years

  3. 4 years

  4. None of the these

Show answer
Correct Option: C
Explanation:

Total cost of machine is Rs 1,50,000+ 50,000 = 2,00,000


Calculation of estimated useful life of machine:

Depreciation = cost-Estimated residual value/estimated useful life
which implies that, 
Estimated useful life = depreciation/cost-estimated residual value
hence,
Estimated useful life = 29,520/2,00,000-81,920

Estimated useful life = 0.25 0r 4 years.

X Ltd. purchased a machine for Rs. 1,20,000 and incurred Rs. 40,000 towards freight, insurance, carriage Inwards and installation charges. It was estimated that its life is 4 years during which period is sum of Rs. 60,000 is likely to be spent on its repairs maintenance and at the end of useful life, the scrap value will be Rs. 20,000. Actual repairs were as under:
Year I -Rs. Nil, Year -II Rs. 10,000, Year -III Rs. 20,000, Year -IV Rs. 30,000
At the end of useful life, the scrap value of the machine released Rs. 16,000 only. 
The closing balance of Provision for Depreciation and Repairs Account at the Year II 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. 50,000

  2. Rs. 1,00,000

  3. Rs. 40,000

  4. Rs. 90,000

Show answer
Correct Option: D