Worksheet Solutions: Depreciation, Provisions and Reserves | Accountancy Class 11 - Commerce PDF Download

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Short Answer Questions

Q1: What is depreciation, and why is it important in accounting?
Ans: Depreciation is the process of reducing the value of an asset over time. It is important in accounting because it helps businesses understand the true value of their assets and the costs associated with using them, which affects profits.

Q2: How do you calculate annual depreciation using the Straight Line Method?
Ans: To calculate annual depreciation using the Straight Line Method, you subtract the scrap value from the purchase price and then divide that number by the useful life of the asset in years. This gives you the amount to subtract each year.

Q3: What is the scrap value of an asset?
Ans: The scrap value is the estimated amount that an asset will be worth at the end of its useful life. It is the value you expect to get when you sell the asset after using it for several years.

Q4: How do we record the purchase of new furniture in the accounts?
Ans: When we buy new furniture, we write it down in our accounts as an asset. We note the amount we paid and add it to our furniture account to show we own it now.

Q5: Can you explain what a balance carried down means?
Ans: A balance carried down means we are taking the leftover amount from one period and bringing it to the next period. It helps us keep track of how much we still have after accounting for things like depreciation.

Q6: Calculate the annual depreciation and the rate of depreciation using the Straight Line Method for a machine purchased for 96,000 with additional costs of 24,000 and a residual value of 72,000 over 4 years.
Ans: The total cost of the machine is 96,000 + 24,000 = 120,000. 

The annual depreciation is calculated as (Cost - Scrap Value) / Life in Years = (120,000 - 72,000) / 4 = 12,000. 

The rate of depreciation is (Annual Depreciation / Cost) × 100 = (12,000 / 120,000) × 100 

= 10% per year.

Q7: X Ltd. purchased a machine for 400,000 and spent 50,000 on installation. What is the annual depreciation using the Fixed Instalment Method over 10 years with a residual value of 50,000?
Ans: The total cost is 400,000 + 50,000 = 450,000. The annual depreciation is calculated as (Cost - Residual Value) / Life = (450,000 - 50,000) / 10 = 40,000. Therefore, the annual depreciation is 40,000.

Q8: What is the total depreciation expense for a machine with an annual depreciation of 15,000 over 3 years?
Ans: The total depreciation expense is calculated by multiplying the annual depreciation by the number of years. Therefore, Total Depreciation = 15,000 × 3 = 45,000.

Q9: How do you prepare a Machinery Account for the first three years if the annual depreciation is 12,000?
Ans: In the Machinery Account, list the cost of the machine at the beginning. Then, subtract the annual depreciation for each year. For three years, the balance will be: Year 1: 120,000 - 12,000 = 108,000; Year 2: 108,000 - 12,000 = 96,000; Year 3: 96,000 - 12,000 = 84,000.

Q10: What is the net book value of an asset?
Ans: The net book value is the current value of an asset after subtracting all accumulated depreciation from the original cost. It shows how much the asset is worth on the balance sheet.