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Test: Audit of Depreciation- 1 - B Com MCQ


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10 Questions MCQ Test - Test: Audit of Depreciation- 1

Test: Audit of Depreciation- 1 for B Com 2024 is part of B Com preparation. The Test: Audit of Depreciation- 1 questions and answers have been prepared according to the B Com exam syllabus.The Test: Audit of Depreciation- 1 MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Audit of Depreciation- 1 below.
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Test: Audit of Depreciation- 1 - Question 1
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What is the main reason for depreciation in the value of fixed assets?

Detailed Solution for Test: Audit of Depreciation- 1 - Question 1
Depreciation in the value of fixed assets occurs mainly due to increased usage and wear and tear over time. The more an asset is used, the greater the wear and tear it experiences, leading to a reduction in its value.
Test: Audit of Depreciation- 1 - Question 2
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Which method of depreciation charges a fixed amount of depreciation every year?

Detailed Solution for Test: Audit of Depreciation- 1 - Question 2
The Straight Line Method charges a fixed amount of depreciation every year throughout the estimated life of the asset. This method is simpler to calculate and provides uniform depreciation over time.
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Test: Audit of Depreciation- 1 - Question 3
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What is the key purpose of creating provisions?

Detailed Solution for Test: Audit of Depreciation- 1 - Question 3
The main purpose of creating provisions is to strengthen the financial position of a company by setting aside funds for known liabilities or potential losses. This helps the company manage its financial stability and meet its obligations.
Test: Audit of Depreciation- 1 - Question 4
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What is the key difference between capital reserves and revenue reserves?
Detailed Solution for Test: Audit of Depreciation- 1 - Question 4
Capital reserves are created out of capital profits of the company, such as premiums on share or debenture issuance and profits prior to incorporation. Revenue reserves, on the other hand, come from revenue earnings and are available for distribution as dividends among shareholders.
Test: Audit of Depreciation- 1 - Question 5
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What is the purpose of a sinking fund?
Detailed Solution for Test: Audit of Depreciation- 1 - Question 5
A sinking fund is created to systematically set aside funds from profits in order to meet known liabilities, such as repayment of debts or replacement of fixed assets, when they become due.
Test: Audit of Depreciation- 1 - Question 6
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Which type of reserve is specifically created for a particular purpose, such as dividend equalization or debenture redemption?
Detailed Solution for Test: Audit of Depreciation- 1 - Question 6
Specific reserves are created for specific purposes, such as dividend equalization reserve or debenture redemption reserve. These reserves are utilized only for their designated purposes.
Test: Audit of Depreciation- 1 - Question 7
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Why might a company create secret reserves?
Detailed Solution for Test: Audit of Depreciation- 1 - Question 7
Companies, particularly those needing public confidence, might create secret reserves by undervaluing assets or creating excessive provisions. This allows them to show higher profits to shareholders while maintaining hidden financial strength.
Test: Audit of Depreciation- 1 - Question 8
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Which type of depreciation method charges a fixed percentage on the written down value of an asset?
Detailed Solution for Test: Audit of Depreciation- 1 - Question 8
The Written Down Value Method, also known as the Diminishing Balance Method, charges a fixed percentage of depreciation on the written down value of an asset each year.
Test: Audit of Depreciation- 1 - Question 9
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What is the primary reason for creating general reserves?
Detailed Solution for Test: Audit of Depreciation- 1 - Question 9
General reserves are created to strengthen the financial position of the company and increase its working capital. They provide a cushion for future contingencies and expansion.
Test: Audit of Depreciation- 1 - Question 10
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What is the key difference between provisions and reserves?
Detailed Solution for Test: Audit of Depreciation- 1 - Question 10
Provisions are charges against profit, created to meet specific liabilities or losses. Reserves, on the other hand, are appropriations of profit that strengthen the company's financial position or are set aside for future use.
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