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InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
State the advantages and limitations of written down value method of depreciation. |
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Answer» Advantages: \(\bullet \) Equal charge against income \(\bullet \) Logical method Limitations: \(\bullet \) Assets cannot be completely written off \(\bullet \) Ignores the interest factor \(\bullet \) Difficulty in determining the rate of depreciation \(\bullet \) Ignores the actual use of the asset |
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| 2. |
State the advantages and limitations of straight line method of depreciation. |
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Answer» Advantages: \(\bullet\) Simple and easy to understand \(\bullet\) Equality of depreciation burden \(\bullet\) Assets can be completely written off \(\bullet\) Suitable for the assets having fixed working life Limitations: \(\bullet\) Ignores the actual use of the asset \(\bullet\) Ignores the interest factor \(\bullet\) Total charge on the assets will be more when the asset becomes older \(\bullet\) Difficulty in the determination of scrap value |
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| 3. |
What are the causes for depreciation? |
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Answer» 1. Wear and tear 2. Efflux of time 3. Obsolescence 4. Inadequacy for the purpose 5. Lack of maintenance 6. Abnormal factors |
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| 4. |
Calculate the rate of depreciation under straight line method from the following information:Purchased a second hand machinery on 1.1.2018 for Rs. 38,000 On 1.1.2018 spent Rs. 12,000 on its repairs Expected useful life of machine is 4 years Estimated residual value Rs. 6,000 |
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Answer» Original cost - residual vale (1) Calculation of amount of depreciation = (Original cost - residual vale) / (Estimated life of asset) Original cost = Purchase of machinery + repair charges = 38,000 + 12,000 = 50,000 Residual value = 6,000 Estimated life = 4 years = (50,000 - 6,000) / 4years = Rs. 11,000/- (2) Rate of depreciation = (Amount of depreciation) / (Original cost) x 100 = 11,000/50,000 x 100 = 22 % |
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| 5. |
Depreciation is to be calculated from the date when ……(a) Asset is put to use (b) Purchase order is made (c) Asset is received at business premises (d) Invoice of assets is received |
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Answer» (a) Asset is put to use |
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| 6. |
Calculate the rate of depreciation under straight line method. Purchase price of a machine Rs. 80,000 Expenses to be capitalised Rs. 20,000 Estimated residual value Rs. 4,000 Expected useful life Rs. 4 years |
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Answer» Original cost - residual value = (Amount of depreciation) / (Original cost) x 100 Original cost = Machine purchased + capitalised expenses = 80,000 + 20,000 = 1,00,000 Residual life = 4,000 Estimated life = 4years = (1,00,000 - 4,000) / 4years = 96,000/4 = Rs. 24,000/- |
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| 7. |
A depreciable asset may suffer obsolescence due to ...(a) Passage of time(b) were and tear (c) Technological changes(d) None of the above |
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Answer» (c) Technological changes |
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| 8. |
Depreciation is the gradual and permanent decrease in the value of an asset from any cause ……(a) Owen (b) Wheeler (c) Spicer and Pegler (d) R.N. Carter |
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Answer» (d) R.N. Carter |
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| 9. |
Lucky & Co’s income statement shows a loss of Rs. 3,000. The owner thinks that there is no need to provide for depreciation as the company has made a loss. He also suggests his accountant to change the method of depreciation for the next year so as to avoid the loss. But, the accountant is hesitant to make the necessary changes suggested by his owner. Now, discuss on the following points:(i) Do you agree on the point that there is no need to charge depreciation when the company has made a loss?(ii) Why does the accountant hesitate to make the changes suggested by his owner?(iii) What are the accounting principles not followed if the accountant agrees to his owner’s suggestion?(iv) Do you think charging depreciation could be the only reason for the company’s loss? |
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Answer» (i) No, I don’t agree on the point that there is no need to charge depreciation when the company has made a loss. We have to charge depreciation whether profit or loss, otherwise we cannot find out the actual profit or loss. (ii) The accountant hesitates to make the changes suggested by his owner because it will differ the profit or loss for the business. The depreciation is a necessary one, so it must be deducted every year. (iii) If the accountant agrees to his owner’s suggestion, they will not follow double entry system. (iv) No, charging depreciation could not be the only reason for the company’s loss, because the business activities are subject to change but the depreciation is compulsory when the business is running. |
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| 10. |
What is wear and tear? |
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Answer» The normal use of a tangible asset results in physical deterioration which is called wear and tear. When there is wear and tear, the value of the asset decreases proportionately. |
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| 11. |
State R.N. Carter’s definition of depreciation. |
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Answer» According to R.N. Carter, “Depreciation is the gradual and permanent decrease in the value of an asset from any cause”. |
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| 12. |
The following formula is used to complete the rate of depreciation under \(\big[1-\sqrt[n] {\frac{Scrap\,value}{Original \,cost}}\big]\)x 100 ....(a) Written down value method (b) Straight line method (c) Machine hour rate method (d) Annuity method |
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Answer» (a) Written down value method |
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| 13. |
…. is also known as residual value. (a) Book value (b) Scrap value (c) Amortization (d) Wear and tear |
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Answer» (b) Scrap value |
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| 14. |
Allocation of acquisition cost of intangible fixed assets such as goodwill is called ……(a) Abnormal factors (b) Wear and tear (c) Amortization (d) Obsolescence |
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Answer» (c) Amortization |
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