Depreciation

Q The main objective of depreciation is
(a) To show the previous profit
(b) To calculate net profit
(c) To reduce tax
(d) To satisfy the tax department
Answer: B
Q2. Depreciation is generated due to
(a) Increase in the value of liability
(b) Decrease in capital
(c) Wear and tear
(d) Decrease in the value of assets
Answer: C
Q3 What is the purpose of making a provision for depreciation in the accounts?
(a) To charge the cost of fixed assets against profits
(b) To show the current market value of fixed asset
(c) To make cash available to replace fixed assets
(d) To make a provision for repairs
Answer: A
Q4. According to straight line method of providing depreciation, the depreciation
(a) Remains constant
(b) Increase each year.
(c) Decrease each year
(d) None of them.
Answer: A
Q5. Total amount of depreciation of an asset cannot exceed its

(a) Depreciable value
(b) Scrap value
(c) Market value
(d) None of these
Answer: A
Q6. According to fixed instalment method, the depreciation is calculated on
(a) Balance amount
(b) Original cost
(c) Scrap value
(d) None of them
Answer: B
Q.7 Salvage value means
(a) Definite sale price of the asset
(b) Cash to be received when life of the asset ends
(c) Cash to be paid when asset is disposed off
(d) Estimated disposal value
Answer: D
Q8. Depreciation is calculated under diminishing balance method, based on
(a) Original value
(b) Book value
(c) Scrap value
(d) None of them
Answer: B
Q9. Depreciation amount charged on a machinery will be debited to:
(a) Repair account

(b) Cash account
(c) Depreciation account
(d) Machinery account
Answer: C
Q10. In accounting, becoming out of date or obsolete is known as
(a) Amortization
(b) Obsolescence
(c) Depletion
(d) Physical deterioration
Answer: B
Define Depreciation?
A. An increase in the value of an asset over time.
B. Resource diminishes over the long run because of utilization.
C. Assets that can quickly be turned into cash.
D. Possession of assets over liabilities.
Answer: B) Resource diminishes over the long run because of utilization.
Explanation:
Depreciation, for example, an abatement in a resource's worth, might be brought about by various
elements also, negative economic situations, and so forth Apparatus, hardware, money are a few
instances of resources that are probably going to devalue throughout a particular timeframe. The
inverse of devaluation is an appreciation which is an expansion in the worth of a resource throughout
some period.
Discuss this Question
2. What is the principal objective of Depreciation?
A. Show last year's profit.
B. Show records to Income Tax Department.

C. To get a tax rebate.
D. To calculate net profit.
Answer: D) To calculate net profit
Explanation:
The primary target of giving depreciation is to ascertain the genuine benefit and give assets to the
substitution of fixed resources.
3. What causes Depreciation?
A. Loss of goods
B. Purchase of Goods
C. Increased Liability
D. Wear & Tear
Answer: D) Wear & Tear
Explanation:
Any resource will bit by bit separate over a specific utilization period, as parts wear out and should be
supplanted. At last, the resource can don't be fixed and should be discarded. This reason is generally
normal for creation gear, which regularly has a maker's suggested life range that depends on a specific
number of units delivered. Different resources, like structures, can be fixed and updated for significant
periods.
4. What is the reason behind making a provision for depreciation in accounts?
A. To show the current value of assets
B. To show current liabilities
C. To charge the cost of assets against profits
D. To purchase new assets

Answer: C) To charge the cost of assets against profits
Explanation:
A depreciation arrangement can make an organization's accounting report all the more precisely mirror
the current worth of the ventures it has made in fixed resources over the long haul.
5. The Depreciation remains constant according to which method?
A. Sum of years digit
B. Units of production
C. Declining Balance
D. Straight Line Method
Answer: D) Straight Line Method
Explanation:
It is the least difficult method for working out the deficiency of worth of a resource after some time. The
straight-line is determined by splitting the distinction between a resource's expense and its normal
rescue esteem by the number of years it is relied upon to be utilized.
6. What is Depreciable Value?
A. The combined cost of purchase and installation of an asset can be depreciated minus its salvage
value.
B. The worth of a physical asset's components when the asset itself is deemed no longer usable.
C. Represents the value of a company according to the stock market.
D. The estimated resale value of an asset at the end of its useful life.
Answer: A) The combined cost of purchase and installation of an asset can be depreciated minus its
salvage value
Explanation:
The depreciable worth of the resource is the joined expense of procurement and establishment of a
resource that can be devalued shortly its rescue esteem.
7. What is Scrap Value?
value
B. The worth of a physical asset's components when the asset itself is deemed no longer usable
C. Represents the value of a company according to the stock market
D. The estimated resale value of an asset at the end of its useful life
Answer: B) The worth of a physical asset's components when the asset itself is deemed no longer usable
Explanation:
Scrap esteem is the value of an actual resource's singular parts when the actual resource is considered
at this point not usable. The singular parts, known as scrap, merit something on the off chance that they
can be put to different employments. Here and there scrap materials can be utilized with no guarantees
and on different occasions, they should be handled before they can be reused.
8. Define Market Value?
value
B. The worth of a physical asset's components when the asset itself is deemed no longer usable
C. Represents the value of a company according to the stock market
D. The estimated resale value of an asset at the end of its useful life
Answer: C) Represents the value of a company according to the stock market
Explanation:
The market esteem addresses the worth of an organization as indicated by the securities exchange. It is
the value a resource would get in the commercial centre. With regards to organizations, market esteem
is equivalent to showcase capitalization. It is a dollar sum processed dependent on the current market
cost of the organization's portions.
9. What is Salvage Value?
value.
B. The worth of a physical asset's components when the asset itself is deemed no longer usable.
C. Represents the value of a company according to the stock market.
D. The estimated resale value of an asset at the end of its useful life.
Answer: D) The estimated resale value of an asset at the end of its useful life.
Explanation:
Salvage Value is the assessed resale worth of a resource toward the finish of its helpful life. It is
deducted from the expense of a proper resource for deciding how much the resource cost will be
devalued. Accordingly, rescue esteem is utilized as a part of the deterioration computation.
10. What is Fixed Instalment Method?
A. The amount of depreciation each year is fixed and equal.
B. Way to work out the loss of value of an asset over time.
C. System of recording larger depreciation expenses during the earlier years.
D. An accelerated method for calculating an asset's depreciation.
Answer: A) The amount of depreciation each year is fixed and equal.
Explanation:
This is the most seasoned and most broadly utilized technique for devaluation. A proper measure of
devaluation is charged each year during the lifetime of the resource. Toward the finish of the resource's
helpful life (e.g., the finish of a machine's life), the worth of the resource will be zero.

1 What is the Straight-Line Method?
Answer: B) Way to work out the loss of value of an asset over time.
Explanation:
The straight-line method is a strategy for computing devaluation and amortization, the most common
way of discounting a resource throughout a more drawn-out timeframe than when it was bought.
12. What is the Declining Balance Method?
Answer: C) System of recording larger depreciation expenses during the earlier years.
Explanation:
In bookkeeping, the declining balance technique is a sped-up deterioration procedure for recording
bigger devaluation costs during the prior long stretches of a resource's helpful life while recording more
modest devaluation during its later years.
13. What is Sum of Years Digit?

Answer: D) An accelerated method for calculating an asset's depreciation.
Explanation:
Sum of the years' digits (SYD) is a sped-up technique for ascertaining a resource's devaluation. This
technique takes the resource's normal life and includes the digits for every year; so, on the off chance
that the resource was supposed to keep going for a very long time, the number of the years' digits
would be gotten by adding: 5 + 4 + 3 + 2 + 1 to get an aggregate of 15. Every digit is then isolated by this
aggregate to decide the rate by which the resource ought to be devalued every year, beginning with the
largest number in year
14. What is the Unit of Production Method?
D. Method of calculating the depreciation of the value of an asset over time.
Answer: D) Method of calculating the depreciation of the value of an asset over time.
Explanation:
The unit of production technique is a strategy for computing the deterioration of the worth of a
resource after some time. It becomes helpful when a resource's worth is all the more firmly connected
with the number of units it delivers rather than the number of years it is being used. This technique
regularly brings about more prominent allowances being taken for deterioration whenever the resource
is vigorously utilized, which would then be able to counterbalance periods when the gear encounters
less use.
15. Depreciation under Diminishing Balance Method is calculated on?
A. Scrap Value
B. Book Value
C. Cash Account
D. Repair
Answer: B) Book Value
Explanation:
As indicated by the Diminishing Balance Method, devaluation is charged at a proper rate on the book
worth of the resource. This strategy depends on the understanding that in the prior years the expense of
fixes to the resources is low and henceforth more measures of deterioration ought to be charged.
16. Depreciation on machinery will be debited in which account?
A. Cash Account
B. Balance Sheet
C. Depreciation Account
D. Machinery Account
Answer: C) Depreciation Account
Explanation:
The Depreciation charged on machinery will be debited in the Depreciation Account.
17. What is Amortization?
A. Accounting techniques are used to periodically lower the book value of a loan.
B. Notable reduction in the utility of an inventory item or fixed asset.
C. Accrual accounting technique used to allocate the cost of extracting natural resources
D. The loss in the physical efficiency of an asset as it ages.
Answer: A) Accounting techniques are used to periodically lower the book value of a loan.
Explanation:
Amortization is a bookkeeping method used to occasionally bring down the book worth of credit or an
immaterial resource throughout a set timeframe. Concerning an advance, amortization centres around
fanning out advance instalments over the long haul. When applied to a resource, amortization is like
deterioration.
18. What is obsolescence?
C. Accrual accounting technique used to allocate the cost of extracting natural resources
Answer: B) Notable reduction in the utility of an inventory item or fixed asset.
Explanation:
Obsolescence is an outstanding decrease in the utility of a stock thing or fixed resource. The assurance
of oldness ordinarily results in a record of the stock thing or resource to mirror its decreased worth.
19. What is Depletion?
C. Accrual accounting technique used to allocate the cost of extracting natural resources.
Answer: C) Accrual accounting technique used to allocate the cost of extracting natural resources.
Explanation:
Depletion for bookkeeping and monetary announcing objects is intended to aid in precisely recognizing
the worth of the resources on the accounting report and recording costs in the fitting period on the pay
articulation.
20. What is physical deterioration?
C. Accrual accounting technique used to allocate the cost of extracting natural resources.
Answer: D) The loss in the physical efficiency of an asset as it ages.
Explanation:
Physical deterioration is the misfortune in the actual effectiveness of a resource as it ages. Effectiveness
in this setting alludes to the resource's capacity to create several capital administrations for a given
measure of information sources. It is equivalent to "mileage" or " rot".
1. When you hear the term depreciation, what comes to your mind?
A. Distribution or allocation of fixed assets among the rightful owners.
B. Depletion of the price of assets following the modern market demand.
C. Reduction in the quoted price of any fixed asset in a set pattern.
D. Increase in value of assets over time.
Ans. Option (C)
2. Why do we need to assess the depreciation value of a particular fixed asset?
A. It gives us useful strategies applying which we can reduce taxation amount.
B. It helps us to determine the profit secured in the previous fiscal year.
C. It is a mandatory rule stipulated by the income tax department.
D. Through depreciation, we get an idea regarding the net profit of a transaction.
Ans. Option (D)
3. Why do fixed assets need to go through depreciation?
A. A firm has to face depreciation in asset values due to the piling up of liabilities each
year.
B. A reduction in capital worth leads to depreciation.
C. Wear and tear resulting from repeated operation reduces the efficiency of pieces of
machinery or equipment, thus price decreases.
D. The particular asset’s net worth gets reduced with time in the market.
Ans. Option (C)
4. How can someone define the terminology ‘obsolete’ in business accounting?
A. Obsolete refers to a range of similar products that were manufactured to fulfill a

purpose and no longer prove to live up to their commitment.
B. A product status that indicates that there are better options available in the
marketplace.
C. Amount of money spent to reorganize the industry’s inventory.
D. Disposal of old stuff as the company can afford new variations to garner more profit.
Ans. Option (A)
5. Where does the accountant allocate the charges marked under the depreciation section while
preparing the balance sheet?
A. In a separate account maintained by the firm only to list depreciation costs.
B. An account that keeps a record of the cash flow.
C. Machinery account that tracks the costs incurred due to maintenance of equipment and
machinery.
D. Repair folio.
Ans. Option (A)
6. What do you understand by ‘salvage’?
A. It is the market rate price or the definite selling price determined by the asset vendor.
B. Salvage value represents the expected disposal value. It is a forecasted metric.
C. Receivable cash amount that is credited to the depreciation account once the life of a
fixed asset ends.
D. Payable amount by the owner when the asset turns out to be obsolete.
Ans. Option (B)

7. We know that depreciation is evaluated by finding the repair expenses incurred all year round.
After that, the balances are tallied in profit and loss folios. This is also termed as diminishing balance
method. What is the base information that needs to be present to execute this process?
A. Net value of all the fixed assets owned by a firm that is displayed on the balance sheet.
B. Original market value.
C. Residual value. It is also referred to as the future price of a fixed asset and is mostly
depicted as a percentage value based on its original price
D. Balance amount
Ans. Option (A)
8. What is the fixed instalment process?
A. It is the process of assessing the sum of money that is left in an individual saving bank
account.
B. It is an adjustment of transaction entries to a company’s business account that is

evaluated to show that debit and credit scores are the same.
C. It is a methodology that states the total depreciation experienced every year is the same
and fixed.
D. It is the quotient received by dividing the net price amount by the total useful year
cycles.
Ans. Option (C)
9. Choose the correct option from the choices given below:
“The depreciation amount of any fixed asset is never going to beat its _______”
A. Original price
B. Balance amount
C. Residual value
D. Estimated depreciable value.
Ans. Option (D)
10. What is the need to prepare a separate account for tracking the depreciable values?
A. This is mandatory otherwise one may not understand the current valuation of assets.
B. One must get an idea of depreciation to figure out the net liabilities.
C. Depreciation helps us in planning the new set of assets.
D. Depreciation facilitates the charging of costs of individual assets against the profit made.
Ans. Option (D)
1 In which method of accountancy do we find the depreciation as a constant value?
A. The method of a straight line.
B. Declining balance methodology.
C. Unit Production Rate.
D. The accelerated sum-of-years methodology.
Ans. Option (A)
12. Please choose the best possible answer that explains the meaning of ‘residual value’.
A. It is a metric that is determined by assimilating the cost of buying and installing the
company’s assets the price of which is bound to deplete in course of time and it will be
subtracted by its salvage value.
B. Residual value depicts the company’s valuation by studying the situation of the stock
market.
C. Residual value is defined as the net worth of all the constituent parts of the physical
assets when the fixed asset has become obsolete and proves to be ill-worthy for
operations.
D. The estimated price of an asset when it is approaching its obsolescence.
Ans. Option (C)
13. Which option gives us clarity on market value?
A. It refers to the company’s overall worth as per the performance of its business. It’s a
metric shown in the stock market exchange.
B. The expected resell amount that can be secured after lending it to a new owner after
the successful completion of its useful cycle.
C. The total cost of each component used in setting up equipment when the machinery
itself no longer provides efficient output.
D. Combined value of installing an asset and purchasing it at a first-owner price point.

Ans. Option (A)
14. How do we define the straight-line method?
A. It is a strategic technique for evaluating the value depreciation of any asset in course of
time.
B. It is a theory that states depreciation rates are identical every year and the depreciable
values are even the same.
C. It is a system of noting down the greater depreciation expenditures that had already
occurred in the previous years.
D. This straight-line technique is an accelerated formula for understanding an asset’s

depreciation.
Ans. Option (A)
15. Can you explain ‘sum-of-years’ digits?
A. (A) It is a method that postulates that each year the depreciation value remains equal
and pre-fixed.
B. (B) This is the accelerated way of evaluating any company’s asset depreciation.
C. (C) It is the method of determining the loss of valuation as the asset reaches its
obsolescence.
D. (D) It can track larger expenses charged in the depreciable accounts in the previous
years.
Ans. Option (B)
16. How to describe the accounting term ‘amortization’?
A. Amortization refers to a specific accrual accounting method that is implemented to

deliver the expenses of extracting every possible natural resource.
B. It is the only method that is periodically reducing the book value against loans taken by
a firm.
C. The depreciation of assets in monetary terms.
D. (D) The wear and tear of fixed assets diminish their physical capacity with time.
Ans. Option (B)
1. Depreciation is charged on
(a) Fixed assets.
(b) Current assets.
(c) Both fixed and current assets.
(d) None of the above.
Depreciation is charged on Fixed assets. So, option (a) is correct
2. Which of the following asset generally assumed not to depreciate?
(a) Machinery
(b) Building
(c) Land.
(d) All of the above.
Land is considered to have indefinite life. So, it is not depreciated. So, option (c) is correct
3. Under the annuity method of depreciation, the charge is
(a) Increasing every year.
(b) Decreasing every year.
(c) Fixed for all years.
(d) Fluctuating from year to year.
Depreciation charge is same for each year but the interest charge decreases each year (as interest is
computed on reducing balance). So, the net charge for depreciation gradually decreases. So, option (b)
is correct.
4. Under the diminishing balance method, the amount of depreciation is calculated on
(a) The written-down value of the asset.
(b) The market value of the asset.
(c) The original cost of the asset.
(d) The expected realizable value of the asset.
Under Diminishing or Reducing Balance Method the depreciation amount is calculated on written down
value. So, the amount reduces every year. So, option (a) is correct.
5. Depreciation charges are

(a) Cash expenses.
(b) Financial expenses.
(c) Non-cash expenses.
(d) Non-operating expenses.
Depreciation charge is diminution in value of fixed assets due to use, which is charged to P & L a/c every
year, There is no cash outflow and so it is a non-cash expenditure. So, option (c) is correct.
6. Book value means
(a) Expected sale price.
(b) Current market price if purchased now.
(c) Value as shown in the books of account.
(d) Original acquisition price.
Book value means the amount shown in the books of accounts. So, option (c) is correct.
7. Which method of depreciation would you recommend for coal mines?
(a) Diminishing balance method.
(b) Fixed installment method.
(c) Sum of year’s digits.
(d) Depletion method.
In case of coal mines, the asset is depleted (as coal is taken out and the coal reserve reduces), depletion
method of depreciation is normally used for such assets. So, option (c) is correct.
8. The depreciation value after two years of an asset costing Rs.10, 000 depreciated at 10% on fixed
installment is Rs. ———— and on reducing balance method is ———–.
(a) Rs.8, 100 and Rs.8, 000.
(b) Rs.9, 000 and Rs.8, 000.
(c) Rs.8, 000 and Rs.8, 100.
(d) Rs.8, 000 and Rs.9, 000.
Book value of the Assets 10,000 10,000

Less: Depreciation @10% p.a. for 1st year. 1,000 1,000
W.D.V. of the Assets 9,000 9,000
Less: Depreciation @ 10% p.a. for the 2nd year. Rs.10,000 x 10 /100
1,000 900
Rs.9,000 x 10 /100
8,0 8,1
W.D.V. of the Assets after 2nd year. So, option (c) is correct.
00 00
9. A machinery was purchased on 1-1-2006. It was delivered on 1-4-2006. The installation was
completed on 1-7-2006. The trial run was completed on 30-9-2006 and was put to use from 1-12-2006.
The effective period for calculation of depreciation for the year 2006 is
(a) 10 months
(b) 9 months
(c) 1 month
(d) 3 months
The effective period for calculation of depreciation starts from the date when the machine is ready for
use. So, deprecation should be computed from 1.12.06, i.e, from 1 month for the year 2006. So, option
(c) is correct.
10. In case of mineral resources:
(a) Depreciation is provided as per SLM
(b) Depreciation is provided as per WDV
(c) Depreciation not provided instead depletion is charged

In case of mineral resources, depletion is charged. So, option (c) is correct.
11. The estimated value of depreciable assets after its useful life is called
(a) Actual value
(b) Replacement value
(c) Disposal (Residual) value
(d) Current value.
Disposal or Residual value is the amount which is expected to be received when the assets is sold after
being removed from service i.e. its useful life. So, option (c) is correct.
12. Depreciation is primarily provided due to:
(a) Reduce tax burden.
(b) Replacement of fixed asset in future.
(c) Comply with legal requirements.
(d) All of the above.
Depreciation is provided for retaining enough funds for replacement of the asset at the end of its useful
life. So, option (b) is correct.
13. Depreciation starts on a machine from the Date:
(a) It is purchased.
(b) It is put to use.
(c) It is installed.
(d) Any of the above.
Depreciation starts on a machine from the date it is put to use. So, option (b) is correct.
14. In the books of D. Ltd. the machinery account shows a debit balance of Rs.60, 000 as on April 1 st,
2003. The machinery was sold on September 30, 2004 for Rs.30, 000. The company charges
depreciation @ 20% p.a. (FY April to March) on diminishing balance method. What will be the Profit or
Loss on sale of machinery?
(a) Rs.13, 200 Profit.
(b) Rs.13, 200 Losses.

(c) Rs.6, 800 Profit.
(d) Rs.6, 800 Losses.
Calculation for Profit or Loss on sale of machinery
W.D.V. of the machinery as on 31.3.2004 [60000-(12000+4800)] 43,200
Less: Sale price 30,000
Loss on sale of machinery 13,200
So, option (b) is the right answer of this question
15. An asset was purchased for Rs.25, 000 and was depreciated under Reducing Balance Method at
the rate of 10% p.a. What is the value of the asset at the end of three years?
(a) Rs.25,000
(b) Rs.20,250
(c) Rs.18,225
Calculation for Depreciation:
Original Cost 25,000
Less: Depreciation for 1st year @ 10% p.a. 2,500
Balance amount of the machine 22,500
Less: Depreciation for 2nd year @ 10% p.a. 2,250
Balance amount of the machine 20,250
Less: Depreciation for 3rd year @ 10% p.a. 2,025

Balance amount of the asset at the end of 3rd year. 18,225
So, option (c) is correct
16. Original cost of an assets Rs.2, 50,000, scrap value Rs.10, 000. Depreciation for 2 nd year @ 10% p.a.
under W.D.V. method will be: /4
(a) Rs.21,600
(b) Rs.24,000
(c) Rs.22,500
Original Cost 2,50,000
Less: Depreciation for 1st year @ 10% p.a. 25,000
Balance amount of the machine 2,25,000
Less: Depreciation for 2nd year @ 10% p.a. 22,500
Balance amount of the machine 2,02,500
So, the depreciation for 2nd year is Rs.22, 500 and hence option (c) is the right answer of this question.
Note: Salvage value is not deducted while computing depreciable base at WDV method.
So, option (c) is correct.
17. On 1st January, 2008, A Ltd. Purchased a machinery for Rs.50, 000 and spent Rs.3, 500 on its
carriage and Rs.2, 500 on its installation. Its useful life is 10 years and scrap value is Rs.6, 000.
Depreciation for the year under straight line method will be:
(a) Rs.4,600
(b) Rs.5,000
(c) Rs.5,600
(d) None of the above
Original Cost 50,000
Add: Carriage 3,500
Installation 2,500 6,000
Cost of the machine 56,000
Less: Scrap value 6,000
Depreciable amount 50,000
Depreciation on SLM @ 1/10 5,000
So, option (b) is correct
18. A Plant of Rs.3, 000 was sold for Rs.4, 200. Depreciation provision to date was Rs.400 and
commission paid to selling agent was Rs.350 and labour charges paid for removing the plant was
Rs.100 Profit on sale of plant will be:
(a) Rs.1,200
(b) Rs.1,000
(c) Rs.1,150
(d) None of these
Calculation for sale of plant:
Book value of the plant = 3000 – 400 = 2600
Net reaslisation of plant = 4200 – (350+100) = 3750
So, profit on sale of machinery = 3750 – 2600 = 1150
So, option (c) is correct

19. A purchased a mine for Rs.5, 00,000. Minerals in the mine were expected to be 10, 00,000 tones.
In the first year, 1, 00,000 tones of minerals were used. What is the depreciation for the first year?
(a) Rs.40,000
(b) Rs.50,000
(c) Rs.60,000
(d) None of these
Depreciation rate (r) = Cost of the asset /estimated quantity likely to be available
i.e. Rs.5,00,000 /10,00,000 / ton = Re.50 / ton
Depreciation = r x production of the year (i.e. minerals extracted)
=.50 x 1,00,000 tons = Rs.50, 000.
20. Original cost = Rs.1, 50,000, Estimated life = 5 years, Expected salvage value
= Rs.3, 000. Rate of depreciation p.a. =?
(a) 19.6%
(b) 20%
(c) 19.8%
(d) 20.8%
Rate of depreciation = (Original cost – Salvage value) / Estimated life.
i.e. Rs. (1, 50,000 – 3,000) / 5 = 29,400
Hence, % of depreciation = (Rs.29,400 /1,50,000) x 100% = 19.6%.
So, option (a) is correct.
21. Lease for 5 year Rs.10, 000. Rate of interest 5% Reference to annuity table 0.230975. The
depreciation per year is
(a) Rs.1,000
(b) Rs.115.48
(c) Rs.230.97
(d) Rs.2,309.75
Depreciation of Re.1 in one year under annuity table is 0.230975
So the depreciation of Rs.10, 000 in one year is 0.230975 x Rs.10, 000 = Rs.2,309.75.
Hence, option (d) is correct.
22. Machinery cost Rs.40, 000. Scrap value Rs.10, 000. Life 5 years. Rate of interest 5%. Reference to
sinking fund table 0.180975. The depreciation per year will be
(a) Rs.6,000
(b) Rs.2,000
(c) Rs.7,239
(d) None of these
Depreciation of Re.1 in one year under sinking fund table is 0.180975
So the depreciation of Rs.40, 000 in one year is 0.180975 x Rs.40, 000 = Rs.7239
Hence, option (c) is correct.
23. On 1st January, 2008 A Ltd. purchased a machinery of Rs.6, 000 and also purchased a second hand
machinery as on 1st July, 2008 of Rs.5, 000. Both the machinery were sold on 31st April, 2009 for Rs.5,
000 and Rs.4, 200 respectively. The company charges depreciation @ 20% p.a. on diminishing balance
method. What will be the profit or loss on sale of both machinery?
(a) No profit, no loss for both machinery.
(b) For 1st machine ‘profit’ and for 2nd machine ‘loss’.
(c) For 1st machine ‘profit’ and for 2nd machine ‘no profit no loss’.
(d) Loss for both the machinery.
Year Calculation Depreciation for Machine 1 Depreciation for Machine 2
2008 Rs.6,000 x 20/100 x 1 year 1,200
2008 Rs.5,000 x 20/100 x 6 months 500
2009 Rs.(6,000 – 1,200) x 20/100 x 4 months 320

2009 Rs.(5,000 – 500) x 20/100 x 4 months 300
Calculation for profit and loss on sale of machinery:
Particulars M1 M2
Cost of machine 6,000 5,000
Less: Depreciation for 2008 and 2009 1,520 800
W.D.V. on 31st April, 2009 4,480 4,200
Less: Sale value 5,000 4,200
Profit / Loss on sale of machine. (520) NIL
So, For 1st machine ‘profit’ and for 2nd machine ‘no profit no loss’ and hence option (c) is the right
answer.
24. On 1.1.2008, value of furniture Rs.9, 000
Furniture purchased during the year Rs.5, 000
Sale of furniture Rs.2,000
Loss on sale Rs.1,000
On 31.12.2008 furniture stood. Rs.8,000
Find out the depreciation at the end of the year.
(a) Rs.4,000
(b) Rs.5,000
(c) Rs.3,000
(d) Rs.2,000
Furniture A/c
Particulars Rs. Particulars Rs.
To balance b/d 9,000 By bank (Sale) 2,000
To Bank A/c (purchase) 5,000 By P/L A/c (loss) 1,000
By Depreciation [bal fig.] 3,000
By Balance c/d 8,000
14,000 14,000
So, the depreciation is Rs.3, 000 and hence, option (c) is correct.
Arithmetically, it may be computed like this
Cost of furniture sold = 2000 (sale value) + 1000 (loss) = 3000
Let depreciation = D
9000 (opening) + 5000 (additions) – D (depn) – 3000 (cost of sale) = 8000 (closing)
So, D = 11000 – 8000 = 3000
25. The cost of the asset purchased on 1st April, 2008 was Rs.24, 000. the depreciation was provided at
10% on Straight Line Method. The asset was sold on 31st Jan, 2009 for Rs.18, 000. Which of the
following statements is/are true?
(a) Depreciation provided for the year was Rs.2,400
(b) Loss on the sale of asset was Rs.4,000

(c) No depreciation will be provided
(d) Both (a) and (b).
Depreciation of the machine = Rs.24, 000 x 10% x 10/12 months. = Rs.2,000.
So, the W.D.V. of the asset = Rs.(24,000 – 2,000) = Rs.22,000
Hence the profit or loss of the asset = (sale vale – w.d.v. of the asset)
i.e. Rs. (22,000 – 18,000) = Rs.4, 000 loss
26. Machinery was purchased for Rs.50, 000 two years ago. The current book value of the machinery
is Rs.36, 125. If the depreciation is charged under written down value method, the rate of
depreciation is :
(a) 30%
(b) 25%
(c) 20%
(d) 15%
Rate of Depreciation is 1-( 2√(36,125 / 50,000) = 1-√.7225 = 1=.85= .0.15 = (,15 x100)x 100%) =15%. So,
option (d) is correct
27. The written down value or an asset after three years of depreciation on the reducing balance
method @ 10% p.a. is Rs.18, 225. Its original value must have been ________.
(a) Rs.40,000
(b) Rs.25,000
(c) Rs.30,000
(d) None of these
Calculation of original value of the assets = Rs.18,225 x 100/90 x 100/90 x 100/90 = Rs.25, 000.
So, option (b) is the right answer.
28. What is Depreciation?

A) Cost of a fixed asset
B) Cost of a fixed asset’s repair
C) The residual value of a fixed asset
D) Portion of a fixed asset’s cost consumed during the current accounting period.
Depreciation is Portion of a fixed asset’s cost consumed during the current accounting period. So,
option (d) is correct
29. What is the accumulated deprecation?

A) Sum of depreciation expenses of a fixed asset from date of putting the asset into use till date
B) Depreciation for 1st year
C) Cost of depletion of assets
D) Future value of fixed asset
Accumulated Deprecation is sum of depreciation expenses of a fixed asset from date of putting the asset
into use till date. So, option (a) is correct
30. Accumulated depreciation Shows

A) Debit balance
B) Credit balance
C) Nil balance
D) Residual Value
Accumulated depreciation Shows Credit balance. So, option (B) is correct.
31. A company purchased a new machine for Rs.500,000 and machine’s test run was started to make
sure that machine works properly. There was expense of Rs.5000 incurred on test run, however
income of test production were Rs.2000. What is the total cost of machine?
A) Rs.500,000
B) Rs.505,000
C) 503,000
D) 495,000
Total Cost of machine is 5,00,000 (purchase cost) + [5000 (test Run expenses) – 2000(test run earnings)\
= 5,00,000 + 3,000= 5,03,000. So, option (C) is correct.
32. An increase in the value of asset is referred to as:

A) Depreciation
B) Appreciation
C) Market capitalization
D) Reverse depreciation
An increase in the value of asset is referred to as Appreciation. So, option (B) is correct.
33. The term ______ is generally used for the depreciation of natural resources:
A) Amortization
B) Depletion
C) Appreciation
D) Disposal Value
The term Depletion is generally used for the depreciation of natural resources. Hence Option (B) is
correct.

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Q The main objective of depreciation is

(a) To show the previous profit

(b) To calculate net profit

(c) To reduce tax

(d) To satisfy the tax department

Q2. Depreciation is generated due to

(a) Increase in the value of liability

(b) Decrease in capital

(c) Wear and tear

(d) Decrease in the value of assets

Q3 What is the purpose of making a provision for depreciation in the accounts?

(a) To charge the cost of fixed assets against profits

(b) To show the current market value of fixed asset

(c) To make cash available to replace fixed assets

(d) To make a provision for repairs

Q4. According to straight line method of providing depreciation, the depreciation

(a) Remains constant

(b) Increase each year.

(c) Decrease each year

(d) None of them.

Q5. Total amount of depreciation of an asset cannot exceed its

(b) Scrap value

(c) Market value

(d) None of these

Q6. According to fixed instalment method, the depreciation is calculated on

(a) Balance amount

(b) Original cost

(c) Scrap value

(d) None of them

Q.7 Salvage value means

(a) Definite sale price of the asset

(b) Cash to be received when life of the asset ends

(c) Cash to be paid when asset is disposed off

(d) Estimated disposal value

Q8. Depreciation is calculated under diminishing balance method, based on

(a) Original value

(b) Book value

(c) Scrap value

(d) None of them

Q9. Depreciation amount charged on a machinery will be debited to:

(a) Repair account

(c) Depreciation account

(d) Machinery account

Q10. In accounting, becoming out of date or obsolete is known as

(d) Physical deterioration

A. An increase in the value of an asset over time.

B. Resource diminishes over the long run because of utilization.

C. Assets that can quickly be turned into cash.

D. Possession of assets over liabilities.

Answer: B) Resource diminishes over the long run because of utilization.

Discuss this Question

2. What is the principal objective of Depreciation?

A. Show last year's profit.

B. Show records to Income Tax Department.

D. To calculate net profit.

Answer: D) To calculate net profit

Discuss this Question

3. What causes Depreciation?

D. Wear & Tear

Answer: D) Wear & Tear

Discuss this Question

4. What is the reason behind making a provision for depreciation in accounts?

A. To show the current value of assets

B. To show current liabilities