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

In plant account repair comes on ______side.

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. Debit

  2. Credit

  3. Either Debit or Credit

  4. None of the above

Show answer
Correct Option: D
Explanation:

None of the above. 

Repairs and maintenance are expenses a business incurs to restore an asset to a previous operating condition or to keep an asset in its current operating condition. Under generally accepted accounting principles – GAAP  you must record repairs and maintenance expenses in your records and report them on your financial statements in the period in which they were incurred. 

Journal entry to record repairs is :

Repairs A/c        Dr.

     To Cash/ Bank/ Creditors for expense A/c

Purchase cost of plant Rs.5,00,000, Installation cost Rs. 50,000 & Repair cost Rs. 3000 ,Original cost of Plant 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.5,00,000

  2. Rs5,50,000

  3. Rs.5,53,000

  4. Rs.5,47,000

Show answer
Correct Option: B
Explanation:

All expenditure incurred on plant till the asset is ready for put to use, are considered as capital expenditure.  This includes installation cost,  freight incurred for bringing the asset to the location etc. 


Original Cost of the plant will be:
Cost of Plant                                           Rs.500000
Add: Installation Cost                             Rs. 50000
                                                                -------------------
Original Cost of Plant                            Rs.550000
                                                               -------------------

Repair cost of Rs.3000 is a revenue expenditure and to be debited to profit & loss account. 

In plant account installation expenses comes on ______ side.

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. Debit

  2. Credit

  3. Either debit or credit

  4. None of the above

Show answer
Correct Option: A
Explanation:

The cost of installation must be added to the cost of assets itself. According to IFRS standard on PPE, the cost and incidental costs like installation cost to bring the asset into use must be measured and accounted for in order to determine the actual cost of any PPE. Hence you will debit Property, plant and equipment (PPE) and credit cash/ bank.

Remember the PPE must be debited under the correct asset category.

In this situation, the journal entry would be :

Plant A/c       Dr.

      To Bank A/c

Give journal entry for:
Depreciation transferred to profit and loss account of $Rs.7500$.

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 and Loss A/c   Dr.  $7500$

    To Depreciation A/c  $7500$

  2. Profit and Loss A/c  Dr.  $7000$

    To Depreciation A/c  $7000$

  3. Depreciation A/c  Dr.  $7500$

    To Profit and Loss A/c  $7500$

  4. None of the above

Show answer
Correct Option: A
Explanation:

Depreciation is a charge to profit & loss account. Every year an amount is charged as depreciation on each of the asset by passing the below entry:


Depreciation A/c                 Dr. $7500$
    To Asset A/c                                     $7500$

Depreciation amount has to be transferred to profit & loss account by making the below journal entry:

Profit & Loss A/c                  Dr. $7500$
   To Depreciation A/c                         $7500$

The annual amount of depreciation charged every year  _______ under written down value 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. Highest in earlier years and gets decline in later years

  2. Highest in earlier years and gets increases in later years

  3. lowest in earlier years and gets decline in later years

  4. Lowest in earlier years and gets increases in later years

Show answer
Correct Option: A
Explanation:

Under written down value of 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 a fixed depreciable asset. Under this method, the rate of depreciation remains constant year after year whereas the amount of depreciation goes on decreasing.

Straight line method and written down value method are generally used for calculating ____________ amount in practice.

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. Historical cost

  4. None of the Above

Show answer
Correct Option: A
Explanation:

There are two most commonly used method of depreciation i.e.,  Straight line method and Written down value method.

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

Under Straight line method 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. Original Cost

  2. Cash Cost

  3. Both

  4. None

Show answer
Correct Option: A
Explanation:

Under straight line method of depreciation, a fixed and equal amount of deprecation, 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 asset.

Under Written down value method the basis of charging 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. Net book value

  2. Original cost

  3. Net Realisable Value

  4. None

Show answer
Correct Option: A
Explanation:

Under written down value of 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 a fixed depreciable asset. Under this method, the rate of depreciation remains constant year after year whereas the amount of depreciation goes on decreasing.

The annual amount of depreciation charged every year remains _______ under straight line 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

  2. Changing

  3. Zero

  4. None

Show answer
Correct Option: A
Explanation:

Under straight line method of depreciation, a fixed and equal amount of deprecation, 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 asset.

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.