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Test: Depreciation Accounting - 1 - Commerce MCQ


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30 Questions MCQ Test Accountancy Class 11 - Test: Depreciation Accounting - 1

Test: Depreciation Accounting - 1 for Commerce 2024 is part of Accountancy Class 11 preparation. The Test: Depreciation Accounting - 1 questions and answers have been prepared according to the Commerce exam syllabus.The Test: Depreciation Accounting - 1 MCQs are made for Commerce 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Depreciation Accounting - 1 below.
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Test: Depreciation Accounting - 1 - Question 1
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Amit Ltd. purchased a machine on 01.01.2003 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value after 5 years Rs 5,000. On 01.07.2003, expenses for repairs were incurred to the extent of Rs 2,000. Depreciation is provided @ 10% p.a. under written down value method. Depreciation for the 4th year = ________.

Test: Depreciation Accounting - 1 - Question 2
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Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of years digits method will be

Detailed Solution for Test: Depreciation Accounting - 1 - Question 2

Original cost = Rs.1,26,000

Salvage value = Nil

Useful life = 6 years

Depreciation for the first year under sum of years digits method:

 

 

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Test: Depreciation Accounting - 1 - Question 3
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Obsolescence of a depreciable asset may be caused by

I. Technological changes.

II. Improvement in production method.

III. Change in market demand for the product or service output.

IV. Legal or other restrictions.

Test: Depreciation Accounting - 1 - Question 4
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A machine which was bought for $180,000 on 30 April 2008. The residual value was $5,000 and depreciation rate was 25%. Depreciation is to be charged under the reducing balance method on month to month basis. Compute the depreciation at 31st December 2008
Test: Depreciation Accounting - 1 - Question 5
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Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of years digits method will be
Detailed Solution for Test: Depreciation Accounting - 1 - Question 5

Option C is correct.
Sum of years = 1+2+3+4+5+6 = 21
Original Cost = 1,26,000

Depreciation = 1,26,000*6/21
                       = 36,000.

Test: Depreciation Accounting - 1 - Question 6
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Amit Ltd. purchased a machine on 01.01.2003 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value after 5 years Rs 5,000. On 01.07.2003, expenses for repairs were incurred to the extent of Rs 2,000. Depreciation is provided under straight line method.
Annual Depreciation = _____.
Detailed Solution for Test: Depreciation Accounting - 1 - Question 6

(Machine Cost + Installation Cost - residual value) / Life of machine 
(120000+10000-5000) / 5 = 25000 
Repair will not be included in the cost of machine.

Test: Depreciation Accounting - 1 - Question 7
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Which of the following statements is/are false?

I. The term ‘depreciation’, ‘depletion’ and ‘amortization’ convey the same meaning.

II. Provision for depreciation a/c is debited when provision for depreciation a/c is created.

III. The main purpose of charging the profit and loss a/c with the amount of depreciation is to spread the cost of an asset over its useful life for the purpose of income determination.
Test: Depreciation Accounting - 1 - Question 8
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Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ Units of Production Method, if units produced in 2nd year was 5,000 and total estimated production 50,000.
Test: Depreciation Accounting - 1 - Question 9
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The number of production or similar units expected to be obtained from the use of an asset by an enterprise is called as
Detailed Solution for Test: Depreciation Accounting - 1 - Question 9

Useful life of an assets may be determine as number of years or number of units that machine/assets is going to produce. Therefore, unit life is the number of production units expected from the use of asset.

Test: Depreciation Accounting - 1 - Question 10
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Which of the following is not true with regard to fixed assets?
Detailed Solution for Test: Depreciation Accounting - 1 - Question 10

The correct option is C.

Fixed assets are not readily liquid and cannot be easily converted into cash. They are not sold or consumed by a company. Instead, the asset is used to produce goods and services. 

The term “fixed” translates to the fact that these assets will not be used up or sold within the accounting year. A fixed asset typically has a physical form and is reported on the balance sheet as property, plant, and equipment

Test: Depreciation Accounting - 1 - Question 11
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Original cost = Rs 1,26,000. Salvage value = 6,000. Useful Life = 6 years. Annual depreciation under SLM =
Test: Depreciation Accounting - 1 - Question 12
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Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ 10% p.a. under WDV method =
Detailed Solution for Test: Depreciation Accounting - 1 - Question 12

Test: Depreciation Accounting - 1 - Question 13
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Which of the following expenses is not included in the acquisition cost of a plant and equipment?
Detailed Solution for Test: Depreciation Accounting - 1 - Question 13

The cost of equipment, vehicles, and furniture includes the purchase price, sales taxes, transportation fees, insurance paid to cover the item during shipment, assembly, installation, Delivery and handling charges and all other costs associated with making the item ready for use.

Test: Depreciation Accounting - 1 - Question 14
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What is the meaning of scrap value? 
Detailed Solution for Test: Depreciation Accounting - 1 - Question 14

The correct answer is the worth of assets when it is no longer useful.  

  • Scrap value, also known as salvage value or residual value, is the estimated value of an asset at the end of its useful life.
  • In other words, it's the worth of an asset after it has been fully depreciated over the period of its usability.
  • Scrap value is an important concept in finance and accounting as it helps businesses to provide a more accurate estimation of their tangible assets' worth and calculate depreciation more precisely.
  • However, assumptions about scrap value may vary and the real end sale value may be different from the estimated one.
Test: Depreciation Accounting - 1 - Question 15
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ABC Ltd. Delhi, paid freight of Rs. 5,000 for bringing one Sortex machine from Mumbai to Delhi which will be used in rice processing. What will be the treatment of freight paid in the books of ABC Ltd.? 
Detailed Solution for Test: Depreciation Accounting - 1 - Question 15
  • According to accepted accounting principles, all costs incurred to bring an asset to a usable condition should be capitalized.
  • Capitalization is a process where a cost is added to the value of an asset, instead of being expensed.
  • In this context, an expense is a cost that is immediately charged against profits and reduces them.
  • Capitalizing an asset means that the cost becomes part of the value of the asset and is gradually "expensed" via depreciation over the life of the asset.
  • The Sortex machine in your example is a fixed asset that ABC Ltd. plans to use in its operational activities, specifically for rice processing.
  • Fixed assets are vital resources for a company since they're used over and over for several years.
  • Since the machine is moved from Mumbai to Delhi before it can be put into use, the freight charges of Rs. 5,000 are considered part of the cost incurred to get the machine ready for its intended use.
  • Therefore, this freight cost of Rs. 5,000 will be "capitalized", i.e., it will be added to the purchase cost of the Sortex machine.
  • It will not be immediately debited to the trading account or profit and loss account (which would have been the case if it were an outright operational expense).
  • Instead, it's seen as part of the investment in the machine.

Hence, added to the cost of machinery will be the treatment of freight paid in the books of ABC Ltd. 

Test: Depreciation Accounting - 1 - Question 16
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Diminishing method of depreciation provides ______.
Detailed Solution for Test: Depreciation Accounting - 1 - Question 16

Diminishing Balance Method

  • According to the Diminishing Balance Method, depreciation is charged at a fixed percentage on the book value of the asset.
  • As the book value reduces every year, it is also known as the Reducing Balance Method or Written-down Value Method.
  • Since the book value reduces every year, hence the amount of depreciation also reduces every year. Under this method, the value of the asset never reduces to zero.
  • This method is based on the assumption that in the earlier years the cost of repairs to the assets is low and hence more amount of depreciation should be charged. Also, in the later years, the cost of repairs will increase and therefore less amount of depreciation shall be provided. Hence, this method results in an equal burden on the profit every year during the life of the asset.
Test: Depreciation Accounting - 1 - Question 17
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In which of the following methods, is the cost of the asset written off in equal proportion, during its useful economic life?
Detailed Solution for Test: Depreciation Accounting - 1 - Question 17

The Straight Line Method of depreciation is a method where the cost of an asset is written off in equal annual amounts over its useful economic life. This means that the same amount of depreciation is charged each year, which provides a consistent and straightforward way to allocate the cost of the asset over time.

Test: Depreciation Accounting - 1 - Question 18
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The portion of the acquisition cost of the asset, yet to be allocated is known as
Detailed Solution for Test: Depreciation Accounting - 1 - Question 18

Written-down value is the value of an asset after accounting for depreciation or amortization. It is calculated by subtracting accumulated depreciation or amortization from the asset's original value, and it reflects the asset's present worth from an accounting perspective. It is that value of asset on which depreciation has not yet been charged and can be seen in balance sheet as net book value of asset.

Test: Depreciation Accounting - 1 - Question 19
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Original Cost = Rs 1,00,000. Life = 5 years. Expected salvage value = Rs 2,000.

Q. Depreciation for 3rd year as per straight line method is
Detailed Solution for Test: Depreciation Accounting - 1 - Question 19

Correct Answer :- b

Explanation : Depreciation in SLM = cost of assets+Installation charges-scrap value/estimated useful life

=100000-2000/5

=98000/5

Annual depreciation=19600

Test: Depreciation Accounting - 1 - Question 20
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Company XYZ uses the straight line method of depreciation for all its fixed assets. On 1 January it bought a machine on hire purchase. The cash price was $150,000 and the interest for the year is %16,500. The estimated useful life of the mahine is five years with no residual value. What is the charge for depreciation for the year ended 31 December?
Test: Depreciation Accounting - 1 - Question 21
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On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.
The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Q.Cost of machinery on 01.04.2002 = ________.
Detailed Solution for Test: Depreciation Accounting - 1 - Question 21

Let machinery on 1.04.2002 be x.
so 1st year depreciation will be x×10/100=x/10.
2nd year depreciation will be (x-x/10)×10/100 = 9x/100.
so total depreciation will be x/10 + 9x/100= 19x/100.
Therefore value of machinery on 01.04.2002 will be
x- 19x/100 =567000
ie. 81x/100 =567000
x =567000×100÷81
=700000

Test: Depreciation Accounting - 1 - Question 22
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On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.
The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Q.Depreciation provided in 2002-03 = ______.
Detailed Solution for Test: Depreciation Accounting - 1 - Question 22

Balance on 1april ,2004is 567000 .
it means that credit balance on 31march ,2004 is also 567000.
let the balance on 1april 2003 be x.
then depreciation will be 10%of x i.e.
10x ÷100= x/10 from this we can understand that x- x/10 =567000 .
here we found thae value of which is 630000.
same process we will follow for the year 2002 to 2003 x-x/10=630000 and value of x is 700000.
so depreciation will be 10% of 7lack that 70000

Test: Depreciation Accounting - 1 - Question 23
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On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.
The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Q.Depreciation provided in 2003-04 = ______.
Test: Depreciation Accounting - 1 - Question 24
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On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.
The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Q.Depreciation under new method for 2002-03 and 2003-04 = _______.
Test: Depreciation Accounting - 1 - Question 25
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On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.
The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Q.Further depreciation to be provided = ______.
Test: Depreciation Accounting - 1 - Question 26
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On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.
The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Q.Balance in Machinery A/c on 31.03.2004 = _______
Test: Depreciation Accounting - 1 - Question 27
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On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.
The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Q.Depreciation for the year 2004-05 = _________.
Test: Depreciation Accounting - 1 - Question 28
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On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.
The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Q.The balance outstanding to the debit of machinery account as on March 31, 2005 after  effecting the above changes was
Detailed Solution for Test: Depreciation Accounting - 1 - Question 28

Calculation of Depreciation as per Diminishing Balance Method:

  • Depreciation for 2002-03: 10% of Rs.5,67,000 = Rs.56,700

  • Depreciation for 2003-04: 10% of (Rs.5,67,000 - Rs.56,700) = Rs.51,930

  • Depreciation for the period from April 01, 2004, to September 30, 2004: 10% of (Rs.5,67,000 - Rs.56,700 - Rs.51,930) = Rs.44,737

  • Total Depreciation under Diminishing Balance Method: Rs.1,53,367

Calculation of Depreciation as per Straight-Line Method:

  • Depreciation for 2002-03: (Rs.5,67,000 - Rs.60,000) / 3 years = Rs.1,69,000

  • Depreciation for 2003-04: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000) / 3 years = Rs.1,12,667

  • Depreciation for the period from April 01, 2004, to September 30, 2004: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000 - Rs.1,12,667) / 2 years = Rs.63,666

  • Total Depreciation under Straight-Line Method: Rs.3,45,333

Adjustment for Depreciation:

  • Depreciation for 2004-05 under Straight-Line Method: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000 - Rs.1,12,667 - Rs.63,666) = Rs.1,61,667

  • Less: Depreciation for 2004-05 under Diminishing Balance Method = Rs.44,737

  • Adjustment for Depreciation: Rs.1,16,930

Balance Outstanding as on March 31, 2005:

  • Debit balance as on April 01, 2004: Rs.5,67,000

  • Add: Cost of new machine = Rs.60,000

  • Add: Installation expenses = Rs.6,000

  • Less: Adjustment for Depreciation = Rs.1,16,930

  • Balance outstanding as of March 31, 2005: Rs.5,52,700

Test: Depreciation Accounting - 1 - Question 29
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The balance in the accumulated provision for depreciation account of a company as at the beginning of the year 2004-2005 was Rs. 2,00,000 when the original cost of the assets amounted to Rs.10,00,000. The company charges 10%depreciation on a straight line basis for all the assets including those which have been either purchased or sold during the year. One such asset costing Rs.5,00,000 with accumulated depreciation as at the beginning of the year of Rs.80,000 was disposed off during the year.

Q.Depreciation for the year is
Test: Depreciation Accounting - 1 - Question 30
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The balance in the accumulated provision for depreciation account of a company as at the beginning of the year 2004-2005 was Rs. 2,00,000 when the original cost of the assets amounted to Rs.10,00,000. The company charges 10%depreciation on a straight line basis for all the assets including those which have been either purchased or sold during the year. One such asset costing Rs.5,00,000 with accumulated depreciation as at the beginning of the year of Rs.80,000 was disposed off during the year.

Q.The balance of the accumulated depreciation account at the end of the year considering the current year’s depreciation charge would be
Detailed Solution for Test: Depreciation Accounting - 1 - Question 30

Given Data:

  • Accumulated depreciation at the beginning of the year: Rs. 2,00,000
  • Original cost of all assets: Rs. 10,00,000
  • Depreciation rate: 10% on a straight-line basis
  • Asset sold:
    • Original cost: Rs. 5,00,000
    • Accumulated depreciation at the beginning of the year: Rs. 80,000

Steps to Calculate the Balance of Accumulated Depreciation:

  1. Calculate the depreciation for the asset sold during the year:

    • Depreciation on the asset sold (Rs. 5,00,000) for the current year: Depreciation = 10% × 5,00,000 = Rs.50,000
    • Total accumulated depreciation on the sold asset by the time it was disposed of: Rs.80,000 + Rs.50,000 = Rs.1,30,000Rs.

  2. Depreciation on the remaining assets:

    • Remaining assets after the sale (Original cost: Rs. 5,00,000)
    • Depreciation for the current year on these assets: 10% × 5,00,000 = Rs.50,000

  3. Accumulated Depreciation at the End of the Year:

    • Starting accumulated depreciation: Rs. 2,00,000
    • Subtract accumulated depreciation of the asset sold: Rs. 1,30,000
    • Add depreciation for the remaining assets: Rs. 50,000

Final Calculation:

2,00,000−1,30,000+50,000=Rs.1,20,000

Given this thorough recalculation, the balance of the accumulated depreciation account at the end of the year is indeed Rs. 1,20,000.

Answer: . Rs. 1,20,000

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