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Test: Depreciation, Provisions and Reserves- Case Based Type Questions - SSC CGL MCQ


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10 Questions MCQ Test SSC CGL Tier 2 - Study Material, Online Tests, Previous Year - Test: Depreciation, Provisions and Reserves- Case Based Type Questions

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Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 1

Read the following hypothetical Case Study and answer the given questions:

Astha Ltd, which closes its books on 31st March every year, purchased on 1st July 2018, machinery costing ₹30,000. It purchased further machinery on 1st January 2019 costing ₹20,000 and on 1st October 2019 costing ₹10,000. On 1st April 2021 one-third of the machinery installed on 1st July 2018 became obsolete and was sold for ₹3,000.

It being given that machinery was depreciated by Diminishing Balance Method at 10% per annum.

What will be the depreciation to be charged on the machinery purchased on 1st July 2018, by the end of 31st March 2020?

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 1

To calculate the depreciation on the machinery purchased on 1st July 2018 by the end of 31st March 2020 using the Diminishing Balance Method at 10% per annum, we need to follow these steps:

  1. Calculate the depreciation for the financial year 2018-2019 (From 1st July 2018 to 31st March 2019, which is 9 months).
  2. Calculate the depreciation for the full financial year 2019-2020.

The original cost of the machinery purchased on 1st July 2018 is ₹30,000.

For the financial year 2018-2019:

  • Depreciation rate: 10%
  • Depreciation for 9 months (as the machinery was purchased on 1st July and the financial year ends on 31st March):
    • Annual depreciation = ₹30,000 * 10% = ₹3,000
    • For 9 months, Depreciation = ₹3,000×912₹3,000×129​ = ₹2,250

For the financial year 2019-2020:

  • New value of machinery after depreciation = ₹30,000 - ₹2,250 = ₹27,750
  • Annual depreciation on the new value = ₹27,750 * 10% = ₹2,775

Therefore, the depreciation to be charged on the machinery purchased on 1st July 2018, by the end of 31st March 2020, for the financial year 2019-2020 would be ₹2,775.

The correct answer is option 4, ₹2,775.

Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 2

Read the following hypothetical Case Study and answer the given questions:

Astha Ltd, which closes its books on 31st March every year, purchased on 1st July 2018, machinery costing ₹30,000. It purchased further machinery on 1st January 2019 costing ₹20,000 and on 1st October 2019 costing ₹10,000. On 1st April 2021 one-third of the machinery installed on 1st July 2018 became obsolete and was sold for ₹3,000.

It being given that machinery was depreciated by Diminishing Balance Method at 10% per annum.

What is the loss/profit on the sales proceeds of the machinery sold on 1st April 2021?

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 2
Loss of ₹5,325 is the loss on the sales proceeds of the machinery sold on 1st April 2021
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Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 3

Read the following hypothetical Case Study and answer the given questions:

Astha Ltd, which closes its books on 31st March every year, purchased on 1st July 2018, machinery costing ₹30,000. It purchased further machinery on 1st January 2019 costing ₹20,000 and on 1st October 2019 costing ₹10,000. On 1st April 2021 one-third of the machinery installed on 1st July 2018 became obsolete and was sold for ₹3,000.

It being given that machinery was depreciated by Diminishing Balance Method at 10% per annum.

What is the total depreciation charged on the machinery purchased on 1st January 2019 by the end of 31st March 2021?

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 3
₹4,205 is the total depreciation charged on the machinery purchased on 1st January 2019 by the end of 31st March 2021
Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 4

Read the following hypothetical Case Study and answer the given questions:

Astha Ltd, which closes its books on 31st March every year, purchased on 1st July 2018, machinery costing ₹30,000. It purchased further machinery on 1st January 2019 costing ₹20,000 and on 1st October 2019 costing ₹10,000. On 1st April 2021 one-third of the machinery installed on 1st July 2018 became obsolete and was sold for ₹3,000.

It being given that machinery was depreciated by Diminishing Balance Method at 10% per annum.

________ account is opened when the value of machinery are not decreased in the books of accounts.

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 4
Provision for depreciation account is opened when the value of machinery are not decreased in the books of accounts.
Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 5

Read the following hypothetical Case Study and answer the given questions:

The business which follows the convention of prudence keeps provisions and reserves so that they can keep the liquidity of the firm and help it in the time of crisis. But, what are exactly Reserves and Provisions. When we talk about provisions, they mean setting aside a part of the profits for meeting a known future liability, the amount of which is not accurately known at the time of finalization of financial statements. It is made for meeting known future liability. The amount of the liability cannot be determined accurately. It is charge against profit reducing the profit. Provisions serve a lot of purposes. It helps in ascertaining the true net profit of the entity. The true financial position can be determined adequately. It helps in providing funds for the liabilities that may occur in future. It helps in the proper allocation of expenses that are incurred over the time.

Reserves, on the other hand, means an appropriation of profits or other surplus to strengthen the liquid resources of the business enterprise and not for meeting any liability, contingency or any commitment of the business. They are retained or undistributed net profit. It is voluntarily done to strengthen the financial position of the firm. It can be used for investing in outside securities. Like provisions, reserves are also very important for the business enterprises. It helps in meeting any unforeseen expenses. It strengthens the financial position of the firm. It helps in equal distribution of profit. It helps in providing funds to meet liability

____________ means setting aside a part of the profits for meeting a known future liability.

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 5
Provision means setting aside a part of the profits for meeting a known future liability.
Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 6

Read the following hypothetical Case Study and answer the given questions:

The business which follows the convention of prudence keeps provisions and reserves so that they can keep the liquidity of the firm and help it in the time of crisis. But, what are exactly Reserves and Provisions. When we talk about provisions, they mean setting aside a part of the profits for meeting a known future liability, the amount of which is not accurately known at the time of finalization of financial statements. It is made for meeting known future liability. The amount of the liability cannot be determined accurately. It is charge against profit reducing the profit. Provisions serve a lot of purposes. It helps in ascertaining the true net profit of the entity. The true financial position can be determined adequately. It helps in providing funds for the liabilities that may occur in future. It helps in the proper allocation of expenses that are incurred over the time.

Reserves, on the other hand, means an appropriation of profits or other surplus to strengthen the liquid resources of the business enterprise and not for meeting any liability, contingency or any commitment of the business. They are retained or undistributed net profit. It is voluntarily done to strengthen the financial position of the firm. It can be used for investing in outside securities. Like provisions, reserves are also very important for the business enterprises. It helps in meeting any unforeseen expenses. It strengthens the financial position of the firm. It helps in equal distribution of profit. It helps in providing funds to meet liability

____________ means an appropriation of profits or other surplus to strengthen the liquid resources of the business enterprise.

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 6
Reserve means an appropriation of profits or other surplus to strengthen the liquid resources of the business enterprise.
Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 7

Read the following hypothetical Case Study and answer the given questions:

The business which follows the convention of prudence keeps provisions and reserves so that they can keep the liquidity of the firm and help it in the time of crisis. But, what are exactly Reserves and Provisions. When we talk about provisions, they mean setting aside a part of the profits for meeting a known future liability, the amount of which is not accurately known at the time of finalization of financial statements. It is made for meeting known future liability. The amount of the liability cannot be determined accurately. It is charge against profit reducing the profit. Provisions serve a lot of purposes. It helps in ascertaining the true net profit of the entity. The true financial position can be determined adequately. It helps in providing funds for the liabilities that may occur in future. It helps in the proper allocation of expenses that are incurred over the time.

Reserves, on the other hand, means an appropriation of profits or other surplus to strengthen the liquid resources of the business enterprise and not for meeting any liability, contingency or any commitment of the business. They are retained or undistributed net profit. It is voluntarily done to strengthen the financial position of the firm. It can be used for investing in outside securities. Like provisions, reserves are also very important for the business enterprises. It helps in meeting any unforeseen expenses. It strengthens the financial position of the firm. It helps in equal distribution of profit. It helps in providing funds to meet liability

Which of the following is not an importance of Reserve?

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 7
It has already been stated above that financial position of a firm is strengthened It helps a firm in case of emergency need of funds, i.e., it helps a firm to tackle its financial problem particularly when the same has suffered from actual shortage of funds (i.e., liquid resource).
Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 8

Read the following hypothetical Case Study and answer the given questions:

The business which follows the convention of prudence keeps provisions and reserves so that they can keep the liquidity of the firm and help it in the time of crisis. But, what are exactly Reserves and Provisions. When we talk about provisions, they mean setting aside a part of the profits for meeting a known future liability, the amount of which is not accurately known at the time of finalization of financial statements. It is made for meeting known future liability. The amount of the liability cannot be determined accurately. It is charge against profit reducing the profit. Provisions serve a lot of purposes. It helps in ascertaining the true net profit of the entity. The true financial position can be determined adequately. It helps in providing funds for the liabilities that may occur in future. It helps in the proper allocation of expenses that are incurred over the time.

Reserves, on the other hand, means an appropriation of profits or other surplus to strengthen the liquid resources of the business enterprise and not for meeting any liability, contingency or any commitment of the business. They are retained or undistributed net profit. It is voluntarily done to strengthen the financial position of the firm. It can be used for investing in outside securities. Like provisions, reserves are also very important for the business enterprises. It helps in meeting any unforeseen expenses. It strengthens the financial position of the firm. It helps in equal distribution of profit. It helps in providing funds to meet liability

Which of the following is not a characteristic of Provisions?

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 8
The characteristics of a provision are that it is a liability where there is uncertainty as to either the timing of settlement or the amount to be settled. ... A provision is an amount that is put aside to cover a future liability.
Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 9

Consider the following statements with respect to Provisions:

(i) The amounts that are created against profit to meet a known liability.

(ii) The amount that is paid.

(iii) The amount of which is uncertain.

Identify the correct statement/statements:

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 9
The amounts that are created against profit to meet a known liability and The amount of which is uncertain.
Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 10

Consider the following statements with regard to the advantages of reverse:

(i) It is created for strengthening the financial position of the business.

(ii) It is created to strengthen the future growth.

(iii) It is an appropriation of profits.

Identify the correct statement/statements:

Detailed Solution for Test: Depreciation, Provisions and Reserves- Case Based Type Questions - Question 10
This technique helps the protagonist to gain more understanding of a significant other rather than being stuck in his own perspective. The last reason is that role reversal helps an auxiliary ego understand how a specific role that he is going to play will be perceived by the protagonist.
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