MCQs and Q&As

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

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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(Correct)
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.

 

Masood purchased a plot for Rs. 8,000. He sells the plot to Aftab at a profit of 20%. Aftab in turn sells that plot to Zahid at a loss of 20%. The plot costs Zahid ?

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Masood purchased a plot for Rs. 8,000. He sells the plot to Aftab at a profit of 20%. Aftab in turn sells that plot to Zahid at a loss of 20%. The plot costs Zahid ?

 

A. Rs. 12,000
B. Rs. 10,000
C. Rs. 8670
D. Rs. 7680(Correct)

 

8000 x 20 / 100 = 1600 (so Masood earns 1600 profit (20%)

Aftab Purchase plot at 8000 + (20% which is 1600 ) = 9600

20% of 9600 = 1920 (Loss of Aftab)

So The plot costs Zahid: 9600 -1920 = 7680