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Test: Depreciation Accounting - 1 - Commerce MCQ


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

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Test: Depreciation Accounting - 1 - Question 1

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

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

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

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

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

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

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

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

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

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

Original cost = Rs 1,26,000. Salvage value = 6,000. Useful Life = 6 years. Annual depreciation under SLM =

Test: Depreciation Accounting - 1 - Question 12

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Test: Depreciation Accounting - 1 - Question 29

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

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

Test: Depreciation Accounting - 1 - Question 31

B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.

Q.Straight line depreciation per annum is

Test: Depreciation Accounting - 1 - Question 32

B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.

Q. Number of years for which depreciation has been charged on this basis is

Detailed Solution for Test: Depreciation Accounting - 1 - Question 32

Therefore, the number of years for which depreciation has been charged on this basis is: 3.

Test: Depreciation Accounting - 1 - Question 33

B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.

Q. If 8% depreciation was charged by the reducing balance method, WDV at the end of 1st year is

Test: Depreciation Accounting - 1 - Question 34

B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.

Q. If 8% depreciation was charged by the reducing balance method, WDV at the end of 2nd year is

Test: Depreciation Accounting - 1 - Question 35

B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.

Q. If 8% depreciation was charged by the reducing balance method, WDV at the end of 3rd year is

Test: Depreciation Accounting - 1 - Question 36

B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.

Q.The extra depreciation to be provided based on the changed method during the year is

Test: Depreciation Accounting - 1 - Question 37

In the year 2004- 2005, C Ltd. purchased a new machine and made the following payments in relation to it: 

Q.The cost of the machine is

Test: Depreciation Accounting - 1 - Question 38

In the year 2004- 2005, C Ltd. purchased a new machine and made the following payments in relation to it: 


Q. If depreciation is provided @ 10% p.a. SLM, depreciation for 3rd year is

Test: Depreciation Accounting - 1 - Question 39

In the year 2004- 2005, C Ltd. purchased a new machine and made the following payments in relation to it: 


Q.If depreciation is provided @ 10% p.a. WDV, depreciation for 3rd year is

Test: Depreciation Accounting - 1 - Question 40

A new machine costing Rs.1 lakh was purchased by a company to manufacture a special product. Its useful life is estimated to be 5 years and scrap value at Rs.10000. The production plan for the next 5 years using the above machine is as follows:


Q.The depreciation expenditure for the 1st year under units-of-production method will be

Detailed Solution for Test: Depreciation Accounting - 1 - Question 40

Depreciation rate = Original cost – Salvage value / Total estimated output units

Depreciation Rate= (100000 - 10000) / 72000 = 1.25 

Depreciation Year 1 = 5000 x 1.25 = 6250

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