Which of the following statements is true about the Fixed Instalment Method of depreciation?

It is also called the diminishing balance method.

It results in decreasing depreciation charges each year.

It writes off a fixed percentage of the original cost every year.

It is suitable for assets where the repair cost is high initially.

In the Diminishing Balance Method, depreciation is calculated on:

The original cost of the asset every year.

The written down value of the asset every year.

The residual value of the asset.

The total cost plus accumulated depreciation.

What is the main disadvantage of the Fixed Instalment Method?

It results in higher depreciation charges in the later years.

It does not account for the increasing repair costs as the asset ages.

It is more complicated to calculate than the Diminishing Balance Method.

It cannot reduce the asset's value to zero.

Which of the following is an advantage of the Diminishing Balance Method?

It ensures a fairly even charge to the Profit and Loss Account on account of both depreciation and repairs.

It brings the asset value to zero at the end of its useful life.

It charges a higher depreciation amount initially which decreases over time.

Which method would be most appropriate for depreciating an asset like a patent or a leasehold?

Double Declining Balance Method

If a firm changes its depreciation method from Fixed Instalment Method to Diminishing Balance Method with retrospective effect, what must be done?

Continue charging depreciation as per the new method from the current year.

Recalculate past depreciation under the new method and adjust the difference in the current year.

Reverse all past depreciation and start afresh.

Use the old method until the asset is fully depreciated.

What journal entry is passed to record depreciation when a Provision for Depreciation Account is maintained?

Debit Asset Account, Credit Profit and Loss Account

Debit Depreciation Expense Account, Credit Asset Account

Debit Profit and Loss Account, Credit Provision for Depreciation Account

Debit Provision for Depreciation Account, Credit Asset Account

Why might a firm choose the Diminishing Balance Method over the Fixed Instalment Method?

To simplify the calculation of depreciation.

To ensure the book value of the asset is zero at the end of its life.

To better match the higher repair costs in later years with lower depreciation charges.

To avoid charging depreciation to the Profit and Loss Account.

Under the Fixed Instalment Method, how is the annual depreciation calculated?

(Cost of Asset - Salvage Value) / Useful Life

Written Down Value * Depreciation Rate

(Cost of Asset + Erection Cost) / Useful Life

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