Depreciation Accounting - General Questions and Answers:
Learning Objectives:
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Answers of some of the general
questions about depreciation accounting.
Theoretical:
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What is depreciation and
how is it brought about?
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Name the different methods
of providing for depreciation, and discuss any one of them in detail?
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Explain the difference
between (i) depreciation and fluctuation (ii) depreciation and
obsolescence. How should obsolescence be provided for.
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What are the objects of
making provision for depreciation of the fixed assets of a business.
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Why should depreciation on
fixed assets be brought into account. Discuss in detail the several
methods of providing for depreciation.
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What is depreciation? Does
it depend on the market value of the asset? Why is it necessary to
provide for depreciation of assets while preparing the balance sheet.
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Explain briefly the nature
and use of the "revaluation process" of depreciation.
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Which is the best method
of providing for depreciation of the following assets:
Loose tools, machinery, live stock, lease, motor vehicles.
Answers:
To find the answers of all the questions above,
please read our
accounting for depreciation
chapter in detail.
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Objectives:
A. State whether each of
the following statements are true or false:
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The objective of charging
profit and loss account with the amount of depreciation is to spread the
cost of an asset over its useful life for the purpose of income
determination.
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The amount of depreciation
is credited to depreciation fund account in case of
annuity method.
-
The charge for use of the
asset remains uniform each year in case of
straight line method.
-
Depreciation is charged on
the book value of the asset each year in case of diminishing balance
method.
-
Depletion method is
suitable for charging depreciation in case of stock or loose tools.
-
Net charge to the profit
and loss account is the same under both annuity method and depreciation
fund method.
-
The amount of depreciation
is credited to the depreciation fund account in the depreciation fund
method.
-
The asset appears always
at original cost in case depreciation is credited to provision for
depreciation account.
-
In case of insurance
policy method, the depreciation is credited to the asset account.
Answers:
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
True |
False |
False |
True |
False |
True |
True |
True |
False |
B. Indicate the alternative
which you consider to be correct.
-
Depreciation is a process
of:
i. Valuation.
ii. Allocation.
iii. Both valuation and allocation.
iv. Non of these.
-
The main objective of
providing depreciation is:
i. To allocate true profit.
ii. To show the true financial position in the balance sheet.
iii. To reduce tax burden.
iv. To provide funds for replacement of fixed assets.
-
Depreciation arises
because of:
i. Fall in the market value of an asset.
ii. Physical wear and tear.
iii. Fall in the market value of money.
-
Under the straight line
method of charging depreciation, it:
i. Increases every year.
ii. Decreases every year.
iii. Is constant every year.
-
Under the diminishing
balance method, the depreciation is calculated on:
i. Original cost.
ii. Written down value.
iii. The scrap value
-
A diminishing balance
method of providing depreciation is one according to which:
i. The amount of depreciation is reduced year to year.
ii. The rate percent of depreciation declines from year to year.
iii. The rate percent as well as the amount reduces every year.
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Depreciation on
diminishing balance method of $2,000 at the rate of 10% p.a after three
years will be:
i. $1,400
ii. $1,458
iii. $542
iv. Non of the above.
-
The amount of depreciation
charged on a machinery will be debited to:
i. Machinery a/c.
ii. Depreciation account.
iii. Cash account.
-
Loss on the sale of
machinery should be written off against:
i. Share premium account.
ii. Sales account
iii. Depreciation fund account
Answers:
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
ii |
i |
ii |
iii |
ii |
i |
iv |
ii |
iii |
C. Fill in the blanks
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The total amount of
depreciation to be written off over the life of an asset is equal to the
cost of the asset less its ________.
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Obsolescence and
inadequacy are called the ________ factors causing depreciation.
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Over or under provision of
________ is taken to profit and loss account as profit or loss at the
time of termination or sale of assets.
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The useful life of
depreciable asset for an enterprise may be ________ than its physical
life. This is usually because of such factors as _________ and ________.
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In the case of wasting
assets the amount of charge determined on the basis of exhaustion of the
asset is known as ________.
Answers:
1 |
2 |
3 |
4 |
5 |
scrape value |
economic |
depreciation |
shorter, obsolescence, inadequacy |
depletion |
|