Tag: depreciation and causes of depreciation

Questions Related to depreciation and causes of depreciation

_____________________  refers to writing-off the cost of intangible assets.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Valuation

  2. Depreciation

  3. Appreciation

  4. Amortisation

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Correct Option: D
Explanation:

Amortization is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. 

The main difference between depreciation and amortization is that the depreciation depreciation is used for tangible asset and amortization is used for intangible asset. 

Depreciation is always charged on ______ Assets.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Current

  2. Fixed

  3. Fictitious

  4. Intangible

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Correct Option: B
Explanation:

Fixed Asset are those which provides benefits to the business in future years to come. Fixed Asset looses its value due to normal wear & tear and usage. Every year an amount is charged as depreciation on each of the fixed asset. 

Depreciation is always charged on fixed assets. 

The money value which is obtained after selling an asset is called __________.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Cost of sales

  2. Scrap value

  3. Sales

  4. Purchase price

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Correct Option: B
Explanation:

Below are the three main factors which affect the calculation of depreciation:

  • Cost of Asset
  • Scrap Value 
  • Estimated life of asset

Depreciation is calculated by considering the scrap value of asset.  The money value which is obtained after selling an asset is called scrap value. 

Depreciation increase the value of asset.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. True

  2. False

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Correct Option: B
Explanation:

Depreciation is the process of reduction in the value of asset. 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.

The term "__________" is used for the process of measuring and recording the exhaustion of natural resources.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Depreciation

  2. Depletion

  3. Amortization

  4. Obsolescence

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Correct Option: B
Explanation:

Depletion is similar to  depreciation in that it is a cost recovery system for accounting and tax reporting. Depletion is the exhaustion of natural resources as a result of their removal. examples are oil, minerals, and timber etc.

_____________ is/are subject to depletion rather than depreciation.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Mines

  2. Quarries

  3. Oil reserves

  4. All the three

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Correct Option: D
Explanation:

Depletion is an accounting technique used to allocate the cost of extracting natural resources such as mines, quarries, oil reserves, timber etc. 


A machinery was purchased on $1-1-2013$. It was delivered on $1-4-2013$. The installation was completed on $1-7-2013$. The trail run was completed on $30-9-2013$ and was made available for use on $1-10-2013$. The actual utilization started from $1-12-2013$. The effective period for calculation of depreciation for $2013$ is __________.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. $10$ months

  2. $9$ months

  3. $1$ months

  4. $3$ months

Show answer
Correct Option: D
Explanation:

The machinery is available for use from 1-10-2013,

The actual utilisation of the machine from 1-12-2013
Machinery should be depreciated from the date of availability of the machine i.e. 1-10-2013
Hence, The effective period for calculation of depreciation for 2013 is 3 months

ABC Ltd. paid Rs. $24$ lakh for use of copy right purchased. This amount can be written off under _________ method of depreciation.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. double declining

  2. sinking fund

  3. amortized

  4. straight line method

Show answer
Correct Option: C
Explanation:

An Intangible assets is an asset that is not physical in nature.  Amortization is an accounting term that refers to the process of allocating the cost of an intangible asset over the period of years. Copyrights are intangible assets as these are not physical in nature. It is a legal right of owner. So this amount can be written off under amortized method of depreciation. 

Depreciation fund method is also known as _________.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Annuity method

  2. Sinking fund method

  3. sum of digits method

  4. double digit method

Show answer
Correct Option: B
Explanation:

Under sinking fund method, depreciation charged is invested in outside securities at the end of the first year. Interest is earned during the second year and the first entry for investment of interest is made at the end of the year.  Amount of depreciation is calculated with the help of sinking fund tables and hence depreciation fund method is also known as sinking fund method.

Which of the following terms is used to describe the process of writing down the long-term investments in intangible assets?

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Amortisation

  2. Depreciation

  3. Depletion

  4. Dilapidation

Show answer
Correct Option: A
Explanation:

Amortization can refer to the process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by its maturity date. With mortgage and auto loan payments, a higher percentage of the flat monthly payment goes toward interest early in the loan. With each subsequent payment, a greater percentage of the payment goes toward the loan's principal.