MCQs / Q&A

Which of the following statements is correct about Depreciation?

A. Depreciation cannot be provided in case of loss in a financial year
B. Depreciation is a charge against profit
C. Depreciation is provided in the books only when there is profit
D. Depreciation is an appropriation of profit

Depreciation is provided as a charge against profits. It is not an appropriation of profit. It
is provided irrespective of whether the business is making a loss or a profit. Hence statement B. is a
true statement.

Which of the following factors are primarily considered to determine the economic life of an asset?

A. Passage of time, asset usage, and obsolescence
B. Tax regulations and SEBI guidelines
C. Tax regulations and asset usage
D. SEBI guidelines and Asset usage

The accounting process of gradually converting the unexpired cost of fixed assets into expenses over a series of accounting periods is_________?

A. Depreciation
B. Physical deterioration of the asset
C. Decrease in market value of the asset
D. Valuation of an asset at a point of time

Which of the following statements is true with regard to written down value method of depreciation?

i. The rate at which the asset is written off reduces year after year
ii. The amount of depreciation provided reduces from year to year
iii. The rate of depreciation as well as the amount of depreciation reduce year after year
iv. The value of the asset gets reduced to zero over a period of time
A. Only (i) above
B. Only (ii) above
C. Both (i) and (ii) above
D. (i),(ii) and (iii) above

The portion of the acquisition cost of the asset yet to be allocated is known as___________?

A. Written down value
B. Accumulated value
C. Salvage value
D. Residual Value

Depreciation is a process of____________?

A. Valuation
B. Valuation and allocation
C. Allocation
D. Appropriation

AS-6 on depreciation accounting defines ‗depreciation‘ as the measure of wearing out, consumption or other loss of a value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined.

The main objective of providing depreciation is to?

A. Calculate the true profit
B. Show the true financial position in the Balance Sheet
C. Provide funds for replacement of fixed assets
D. Both A. and B. above

The main objective of providing depreciation is to find out the true Net Profit or Loss for
an accounting period and to present a true and fair view of the state of affairs of the business.
Providing funds for replacement is only an ancillary objective and not the main objective.]

Which of the following is true with respect to providing depreciation under diminishing balance method?

A. The amount of depreciation keeps increasing every year while the rate of depreciation keeps decreasing
B. The amount of depreciation and the rate of depreciation decrease every year
C. The amount of depreciation decreases while the rate of depreciation remains the same
D. The amount of depreciation and the rate of depreciation increases every year

Under the written down value method of depreciation, the rate of percentage of depreciation is fixed, but it applies to the value of the asset at which the asset stands in the books in the beginning of the year. Therefore, the amount of depreciation decreases as the fixed rate of depreciation is charged on written down values of the asset.

A second hand car is purchased for 2,00,000 and sold at 1,40,000 after two years. If depreciation is charged @ 10% on written down value method, find the profit or loss on sale of the Second hand car?

A. Loss of 20,000
B. Loss of 22,000
C. Loss of 11,000
D. Profit of 11,000

A second hand car is purchased for 2,00,000 and sold at 1,40,000 after two years. If depreciation is charged @ 10% on SLM method, find the profit or loss on sale of the car?

A. 20,000 Loss
B. 20,000 Profit
C. 10,000 Loss
D. 10,000 Profit