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Page 1 CPT Section A: Fundamentals of Accounting Chapter-5 Part 3: Methods of Depreciation CA. Poonam Patni Page 2 CPT Section A: Fundamentals of Accounting Chapter-5 Part 3: Methods of Depreciation CA. Poonam Patni MCQ's Page 3 CPT Section A: Fundamentals of Accounting Chapter-5 Part 3: Methods of Depreciation CA. Poonam Patni MCQ's Increases every year Decreases every year Fixed for all years Revalued every year MCQ 1. In annuity method, the amount of depreciation: Page 4 CPT Section A: Fundamentals of Accounting Chapter-5 Part 3: Methods of Depreciation CA. Poonam Patni MCQ's Increases every year Decreases every year Fixed for all years Revalued every year MCQ 1. In annuity method, the amount of depreciation: (a) Only provide for depreciation of an asset (b) Provide for depreciation & also to accumulate the amount for its replacement (c) Provide for the payment of some liability (d) Providing for future losses MCQ 2.Depreciation fund method is designed to : Page 5 CPT Section A: Fundamentals of Accounting Chapter-5 Part 3: Methods of Depreciation CA. Poonam Patni MCQ's Increases every year Decreases every year Fixed for all years Revalued every year MCQ 1. In annuity method, the amount of depreciation: (a) Only provide for depreciation of an asset (b) Provide for depreciation & also to accumulate the amount for its replacement (c) Provide for the payment of some liability (d) Providing for future losses MCQ 2.Depreciation fund method is designed to : Profit & loss account Asset Account Sinking Fund Account Depreciation Account MCQ 3. Any profit or loss on the sale of sinking fund investment is transferred to :Read More
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FAQs on MCQ - Depreciation Accounting - 1 - Principles and Practice of Accounting - CA Foundation
| 1. What is depreciation accounting? |  |
Ans. Depreciation accounting refers to the process of allocating the cost of an asset over its useful life. It is a method used to recognize and record the gradual wear and tear, obsolescence, or deterioration of an asset in the financial statements.
| 2. How is depreciation calculated? | |
Ans. Depreciation can be calculated using various methods such as straight-line method, declining balance method, and units of production method. The most commonly used method is the straight-line method, where the depreciation expense is calculated by dividing the cost of the asset by its useful life.
| 3. Why is depreciation important in accounting? | |
Ans. Depreciation is important in accounting as it helps in accurately reflecting the true value of an asset over time. It ensures that the cost of an asset is allocated properly to the periods in which it is used to generate revenue. Additionally, depreciation also helps in determining the net book value of an asset and in calculating taxable income.
| 4. What is the difference between depreciation and amortization? | |
Ans. Depreciation and amortization are similar concepts but are used for different types of assets. Depreciation is used for tangible assets such as buildings, machinery, and vehicles, while amortization is used for intangible assets such as patents, copyrights, and trademarks. Both depreciation and amortization involve allocating the cost of an asset over its useful life.
| 5. How does depreciation affect financial statements? | |
Ans. Depreciation affects financial statements in several ways. Firstly, it reduces the value of an asset on the balance sheet over time. Secondly, it increases the depreciation expense on the income statement, which reduces the net income. Lastly, depreciation also affects the statement of cash flows by reducing the cash flow from operating activities due to the non-cash expense.
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