Tag: accounting treatment for depreciation

Questions Related to accounting treatment for depreciation

Which of the following statements is true in case of Joint Venture?

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. Only one venturer bears the risk.

  2. Only one venturer can sell the goods.

  3. Only one venturer can purchase the goods.

  4. In joint venture, provisions of the Partnership Act apply

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Correct Option: D
Explanation:

Option D is the correct one.
Any person competent to contract, a company, partnership firm or a corporation can enter into a Joint Venture in India. It can be in the form of partnership firm, corporation or any other business entity which the parties may choose. A Joint Venture can be formed for any lawful business purpose.

A provision should be recognized when _______________.

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. An enterprise has a present obligation as result of a past event

  2. It is probable that an outflow of will be required to settle the obligation

  3. A reliable estimate can be made of the amount of the obligation

  4. All of the above

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Correct Option: D

The entry for creating a provision for bad debts is:

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. Debit provision for bad debts a/c and Credit debtors a/c.

  2. Debit debtors a/c and Credit provision for bad debts a/c.

  3. Debit provision for bad debts a/c and Credit [profit and loss a/c.

  4. Debit profit and loss a/c and Credit provision for bad debts a/c.

Show answer
Correct Option: D
Explanation:

The provision for doubtful debts is the estimated amount of bad debts that will arise from accounts receivable that have been issued but not yet collected. It is identical to the allowance for doubtful accounts. The provision is used under accrual basis accounting, so that an expense is recognized for probable bad debts as soon as invoices are issued to customers, rather than waiting several months to find out exactly which invoices turned out to be noncollectable.

Journal entry for creating a provision for bad debts is:
      Profit and loss A/c          Dr.
                   To Provisions for bad debts A/c

Present liability of uncertain amount, which can be measured reliably by using a substantial degree of estimation, is termed as ____________.

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. Provision

  2. Liability

  3. Contingent liability

  4. None of these.

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Correct Option: A
Explanation:
Provision is an amount set aside, by charging it to profit and loss account or statement of profit and loss, to provide for a known liability the amount of which cannot be determined with accuracy. It is charged in the profit and loss account on an estimate basis. In other words, a provision is a charge against profit for the purpose of providing any liability or loss.

The provision for bad debts is made by crediting __________.

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. Profit and loss account

  2. Debtors account

  3. Provision for bad debts account

  4. Trading account

Show answer
Correct Option: C
Explanation:

The provision for bad debts might refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for doubtful accounts, or Allowance for Uncollectible Accounts. In this case, the account Provision for Bad Debts is a  contra asset account (an asset account with a credit balance). It is used along with the account Account receivable in order for the balance sheet to report the net realizable value of the accounts receivable.

Provision for bad debts is made by debiting profit and loss A/c and crediting provision for bad debts account.

 

A ____________ is a liability which can be measured only by using a substantial degree of estimation.

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. Provision

  2. Non-current liability

  3. Current liability

  4. Contingent liability

Show answer
Correct Option: A
Explanation:
Provision is an amount set aside, by charging it to Profit and Loss A/c or Statement of profit and loss, to provide for a known liability, the amount of which cannot be determined with accuracy. It is charged in the profit and loss account on estimate basis. In other words, a provision is a charge against profit for the purpose of providing for any liability or loss. Provision for depreciation, provision for doubtful debts, provision for repairs are few examples of provisions.

In the absence of specific provision in the partnership deed rate interest on capital of the partners would be allowed ______ .

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. 8%

  2. 10%

  3. 6%

  4. Nil

Show answer
Correct Option: D
Explanation:

Where there is neither partnership deed nor express agreementv or partnership deed is there but silent on any matter, then the relevant provisions of the Indian partnership act, 1932, would be applicale. As per these provisions no interest is to be allowed on capital.

Provision is ______________.

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. An appropriation of profits

  2. A charge against the profits

  3. Writing off losses

  4. Charging depreciation

Show answer
Correct Option: B
Explanation:

The term provision refers to any of the following amounts :

(a) The amount written off or reatined by way of providing for depreciation, renewals or diminution in value of assets; or
(b) The amount retained by way of providing  for any known liability of which the amount cannot be determined with substantial accuracy.
Provision is a charge against profit and is required to be created irrespective of the amount of profit.

Any profit or loss on the sale of sinking (depreciation) fund investment is transferred to:

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. Profit and loss account

  2. Asset account

  3. Sinking fund account (depreciation fund account)

  4. Depreciation A/c

Show answer
Correct Option: C
Explanation:

Option C is the correct one.

Under this method, the amount of depreciation charged every year is transferred to the sinking fund account. Also, the sale proceeds of the old asset and any profit or loss from the sale of investments are transferred to the Sinking Fund Account.this amount also invested in govt.securities.

The profit on depreciation policy is transferred to ________________.

book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

  1. Depreciation fund account

  2. Asset account

  3. Profit and loss account

  4. Depreciation account

Show answer
Correct Option: A
Explanation:

Sinking fund method is used when the cost of replacement of an asset is too large. Depreciation is charged every year to the profit and loss A/c. But, it may sometimes happen that the amount is not readily available at the time of purchase of the new asset. 


Thus, the sinking fund method is used.Under this method, the amount of depreciation charged every year is transferred to the sinking fund account. This amount is then invested in Government securities. Also, the interest earned on these securities is reinvested.

The amount of depreciation to be charged every year is calculated after considering the element of interest. The interest will be earned on the amount which is invested every year and will remain invested till the useful life of the asset.