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Test: Depreciation Provisions And Reserves - 1 - Commerce MCQ


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10 Questions MCQ Test - Test: Depreciation Provisions And Reserves - 1

Test: Depreciation Provisions And Reserves - 1 for Commerce 2024 is part of Commerce preparation. The Test: Depreciation Provisions And Reserves - 1 questions and answers have been prepared according to the Commerce exam syllabus.The Test: Depreciation Provisions And Reserves - 1 MCQs are made for Commerce 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Depreciation Provisions And Reserves - 1 below.
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Test: Depreciation Provisions And Reserves - 1 - Question 1

Q  Every fixed asset loses its value due to use or other reasons. This decline in the value of asset is known as

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 1

The fixed assets are long-term assets. They help in the production of goods and services. However, when an asset is in use its value decreases due to the normal wear and tear, efflux of time and obsolescence. This reduction in the value of a fixed asset is known as depreciation.

Test: Depreciation Provisions And Reserves - 1 - Question 2

Following are the causes of Depreciation except

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 2

The correct option is B.

Wear and tear due to use or passage of time means deterioration, and the consequent diminution in an assets value, arising from its use in business operations for earning revenue. Wear and tear is the physical deterioration. an asset deteriorates simply with the passage of time, even if they are not being put to any use.

Expiration of legal rights certain categories of assets lose their value after the agreement governing their use in business comes to an end after the expiry of pre-determined period.

Obsolescence is another factor leading to depreciation of fixed assets. Obsolescence means the fact of being “out-of-date”. Obsolescence implies to an existing asset becoming out-of-date on account of the availability of better type of asset. 

So, only normal factors are not a cause of depreciation

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Test: Depreciation Provisions And Reserves - 1 - Question 3

The term depletion is used for :

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 3

Depletion is an accrual accounting technique used to allocate the cost of extracting natural resources such as timber, minerals, and oil from the earth. Like depreciation and amortization, depletion is a non-cash expense that lowers the cost value of an asset incrementally through scheduled charges to income.

Test: Depreciation Provisions And Reserves - 1 - Question 4

An alternative term used for accumulated depreciation expenses?

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 4

Provision for depreciation is an alternative term used for accumulated depreciation expenses. Depreciation expense is recognized on the income statement as a non-cash expense that reduces the company's net income.

Test: Depreciation Provisions And Reserves - 1 - Question 5

Depreciation charged under diminishing method

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 5

Depreciation charged by diminishing value method will decrease every year as the asset will decrease in its value every year due to obslence and wear and tear etc. So correct answer is b

Test: Depreciation Provisions And Reserves - 1 - Question 6

Which of the following is not a type of reserve

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 6

Provision for bad debts is a liability for the business and is not any reserve.

Test: Depreciation Provisions And Reserves - 1 - Question 7

What is depreciation?

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 7

Depreciation is the cost of using a fixed asset .It is the decrease in the value of a fixed asset due to wear and tear in the asset due to their constant use.Example- Decrease in the value of machine as they become old.

Test: Depreciation Provisions And Reserves - 1 - Question 8

Depreciation helps in determining

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 8

The purpose of depreciation is to achieve the matching principle of accounting, that is, a company is attempting to match the historical cost of a productive asset (that has a useful life of more than a year) to the revenues earned from using the asset.

Test: Depreciation Provisions And Reserves - 1 - Question 9

What is the rate of charging depreciation under diminishing method?

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 9

Under this method, the amount of depreciation is calculated as a fixed percentage of the reducing or diminishing value of the asset standing in the books at the beginning of the year, so as to bring down the book value of the asset to its residual value. The amount of depreciation goes on decreasing every year.

Test: Depreciation Provisions And Reserves - 1 - Question 10

Under which depreciation method the amount of depreciation expenses remains same throughout the useful life of a fixed asset

Detailed Solution for Test: Depreciation Provisions And Reserves - 1 - Question 10

Under straight line method of depreciation the amount of depreciation expenses remains same in the entire useful life of fixed asset because, under straight line method the depreciation is charged on the original cost of the asset and not on diminishing value of the asset.

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