Tag: need for depreciation and the factors affecting the amount of depreciation

Questions Related to need for depreciation and the factors affecting the amount of depreciation

The amount of depreciation  goes on decreasing in every year under the _____method.

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. Fixed installment

  2. Straight line

  3. Revaluation

  4. Written down value

Show answer
Correct Option: D
Explanation:

Under the written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of fixed depreciable asset is written off during each accounting period over the expected useful life of asset. Under this method, the rate of deprecition remains constant year after year whereas the amount of depreciation goes on decreasing.

In the provision method of depreciation the asset always appears at:

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 price

  2. Market Price

  3. Scrap Value

  4. None of the above

Show answer
Correct Option: A
Explanation:

Under provision for depreciation method of recording depreciation, depreciation is credited to the provision for depreciation account and as a result, the respective asset accout appears at its original cost.

Give journal entries:
For deducting depreciation amount from the cost of the 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. Depreciation A/c Dr.

    To Asset A/c

  2. Profit & Loss A/c Dr.

    To Depreciation A/cP

  3. Asset A/c Dr.

    To Depreciation A/c

  4. DepreciationA/c Dr.

    To Profit & Loss A/c

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.

Depreciation is a non cash expense. As per the golden rules of accounting, all expenses are related to nominal A/c and assets are related to Real A/c.
Therefore, journal entry for deducting depreciation amount from the cost of the asset is :
 Depreciation A/c     Dr.
        To Asset A/c

Other name of straight line basis 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. Reducing depreciation

  2. Diminishing balance method

  3. Written down value method

  4. None of the above

Show answer
Correct Option: D
Explanation:

Straight line method of depreciation - Under straight line method method, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each accounting period over the expected useful life of the asset.

Straight line method of depreciation can allso be called as fixed installment method of depreciation.

Under written down value method the annual amount 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. Always same

  2. Goes on decling

  3. Keep on increasing

  4. None of the Above

Show answer
Correct Option: B
Explanation:

Under the written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of fixed depreciable asset is written off during each accounting period over the expected useful life of asset. Under this method, the rate of deprecition remains constant year after year whereas the amount of depreciation goes on decreasing.

Where the provision for depreciation account appears in Balance sheet?

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. Liabilities side

  2. Asset side

  3. Trading account

  4. Profit & loss account

Show answer
Correct Option: A
Explanation:

Under provision for depreciation method of recording depreciation, Fixed asset is shown at its original cost on the asset side in balance sheet and depreciation till date is accumulated in provision for depreciatiion account which is shown on liabilities side in balance sheet.

Under straight line method of depreciation is charged on the basis of _________ .

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

  2. Book value

  3. Original cost

  4. None of the Above

Show answer
Correct Option: C
Explanation:

Under the staright line method of depreciation, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each aaccounting period over the expectd useful life of the asset.

Reserve arising from capital receipts are known 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. Capital reserve

  2. Reserve fund

  3. Secret reserve

  4. General reserve

Show answer
Correct Option: A
Explanation:

The term 'Reserves' refers to the profits reatined in the business not having any of the attributes of a 'provision' If however, the provision exceeds the amount which is required to meet the loss or liabilty, the excess is to be treated as reserve. In other words, Reserves means accumulated or undistributed profits.

Basically, there are two types of reserves viz. Revenue Reserves and Capital Reserves.
Revenue reserves are those reserves which are created out of profits available for distribtion by way of dividend .
Capital reserves are those reserves which are not created out of operating profit but they arise out of capital receipts.

 The depreciation charged if not deducted from assets will appear under which account____.

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. Provision for fixed asset account

  2. Provision for asset account

  3. Accumulated depreciation account

  4. Depreciation account

Show answer
Correct Option: C
Explanation:

Option C is correct one.
The amount of depreciation is then transferred to Profit and Loss Account at the end of the year. However, the Asset Account will appear at cost. Further, the accumulated depreciation appears either shown as a deduction from the asset or the same may appear in the liability side of the Balance Sheet.

Give journal entry for: 

Expenses incurred on installation of plant.

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. Profit & loss A/c   Dr.

    To Bank A/c

  2. Plant A/c    Dr.

    To Bank A/c 

  3. Bank A/c    Dr. 

    To Profit & loss A/c 

  4. Bank A/c   Dr.

    To Plant A/c 

Show answer
Correct Option: B
Explanation:

All the incidental expense incurred for purchase of an asset should be debited to the respective asset as these are capital expenditure. This includes all such expense incurred on the asset to make the same as "put to use". 

Expense incurred on installation of a plant of Rs.4500, below journal entry will be passed:
Plant A/c       Dr. 
    To Bank A/c