Test: Depreciation Accounting - 1


40 Questions MCQ Test Fundamentals of Accounting for CA CPT | Test: Depreciation Accounting - 1


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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 = ________.

Solution:
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

Solution:

Original cost = Rs.1,26,000

Salvage value = Nil

Useful life = 6 years

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

 

 

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.

Solution:
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

Solution:
QUESTION: 5

Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the fourth year under sum of years digits method will be

Solution:

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

Depreciation = 1,26,000*3/21
                       = 18,000.

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 = _____.

Solution:

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

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.

Solution:
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.

Solution:
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

Solution:

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.

QUESTION: 10

Which of the following is not true with regard to fixed assets?

Solution:

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

QUESTION: 11

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

Solution:
QUESTION: 12

Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ 10% p.a. under WDV method =

Solution:
QUESTION: 13

Which of the following expenses is not included in the acquisition cost of a plant and equipment?

Solution:

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.

QUESTION: 14

For charging depreciation, on which of the following assets, the depletion method is adopted?

Solution:

Wasting assets are those assets which have a life for a restrained period and consequently depreciate in value over time. A depleted asset is oftentimes utilized until they are completed disappeared. A wasting asset is also attributed to as a utilized asset. Some instances of dissipating assets are natural gas, oil, mines, quarries, and coal.

QUESTION: 15

If a concern proposes to discontinue its business from March 2005 and decides to dispose off all its assets within a period of 4 months, the Balance Sheet as on March 31, 2005 should indicate the assets at their

Solution:
QUESTION: 16

In the case of downward revaluation of an asset which is for the first time revalued, the account to be debited is

Solution:

When you revalued the asset for 1st time it was downward reveluation so you should debit the P&L A/c by the amount of revaluation. Then after 1 year you want to revalue it upward so you should credit P&L A/c because the previous downward revaluation was accounted through P&L A/c.

QUESTION: 17

In which of the following methods, is the cost of the asset written off in equal proportion, during its useful economic life?

Solution:
QUESTION: 18

The portion of the acquisition cost of the asset, yet to be allocated is known as

Solution:

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.

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

Solution:
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?

Solution:
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 = ________.

Solution:

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

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 = ______.

Solution:

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

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 = ______.

Solution:
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 = _______.

Solution:
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 = ______.

Solution:
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 = _______

Solution:
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 = _________.

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:
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

Solution:

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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