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CPT SANGITAS CLASSES ACCOUNT

CHAPTER- 5
DEPRECIATION ACCOUNTING
1. Under straight line method, depreciation is calculated on :
a) Written down value b) Scrap value c) Original cost d) None of the three
. !epreciation arises because of :
a) "all in the mar#et value of the assets b) "all in the value of mone\$
c) %h\$sical wear and tear of the assets d) None of the three
&. 'he value of an asset after deducting depreciation from the historical cost in #now as :
a) "air value b) (oo# value c) )ar#et value d) Net reali*able value
+. Which of the following is,are method of depreciation-
a) .nnuit\$ method b) /evaluation method c) !epreciation "und method d) .ll of these
0. !epreciation includes :
a) !epreciation indicates the decrease in the value of the assets. 1b) Such decrease in value is permanent and perpetual
c) !epreciation is charged on the fi2ed assets alone and not on circulating assets. 1d) .ll of these
3. 4n the case of a particular depreciation method the periodic depreciation is smaller than the asset5s actual annual
depreciation cost. 'he annual net incidence on profit and loss account remains constant due to incorporation of onl\$ fi2ed
depreciation. 'he periodic depreciation method used in this case is :
a) Sin#ing fund method b) !iminishing balance method c) .nnuit\$ method d) Sum6of6\$ear digits method
7. 4f depreciation is calculated on the basis of the formula. n(n +1) , then which one following methods is adopted-
2
a) !iminishing value method b) .nnuit\$ method c) Sum of \$ears digits method d) Sin#ing fund method
8. 9onsider the following statements :
'he purpose of charging depreciation to the profit and :oss .ccount are :
1. 'o provide for replacement of an asset . 'o ascertain true profit
&. 'o present real financial position +. 'o arrive at the scrap value of the asset
Which of these statement are correct -
a) 1 and + b) 1 and c) 1, and & d) ,& and +
;. 9harging a period for the proportionate cost of an intangible asset is termed as :
a) !epreciation b) !iminution c) .mortisation d) <2piration

1=. Obsolescence means decline in the value due to :
a) "all in the mar#et price b) %h\$sical wear and tear c) 4nnovations and inventions d) <fflu2 of time
11. Which of the following is depreciation method -
a) .nnuit\$ method b) Sin#ing fund method c) >roup depreciation d) .ll of these
1. Which of the following is,are factors of depreciation -
a) .ssets cost b) Salvage value c) Useful life d) .ll of these
1&. !epreciation is related with :
a) "i2ed .ssets b) 9urrent .ssets c) 9apital d) )one\$
1+. .morti*ation is related with :
a) 'angible assets b) 4ntangible assets c) 9apital d) )one\$
10. Which of the following statement is correct about depreciation -
a) 'he process of wear and tear from use would render an asset unusable in course of time.
b) .ssets lose their usefulness over a period of time, whether the\$ are being used or not.
c) 'he new inventions change in manufacturing methods, shifts in demand or services or an\$ other condition ma#e the
assets out of date
d) .ll of these
13. !ecrease in value of .ssets b\$ :
a) (\$ lapse of time b) (\$ continuous use c) (\$ accidents d) .ll of these
17. )atch :ist 4 with :ist 44 and select the correct answer using the codes given below the :ists :
:ist 4 :ist 44
a) :easehold propert\$ 1. !epreciation fund method
b) )ines, ?uarries, etc. . .nnuit\$ method
c) 'he interest lost on the ac?uisition of an asset &. "i2ed installment method
d) 'o provide for replacement of assets at the end of its useful life. +. !epletion method
9odes :
CPT SANGITAS CLASSES ACCOUNT
a b c d
a) 1 +
b) & + 1
c) & + 1
d) + & 1
18. Which one of the following statements is correct -
a) !epreciation is not the process of valuation of asset @ it is a process of allocation of cost of asset to the period of its
economic life.
b) 4f the cost of machiner\$ is more than the boo# value, than depreciation need not be provided.
c) When the plant and machiner\$ is maintained in good condition, through repairs and renewals, depreciation need not be
provided.
d) 4n the absence of an\$ legal provisions, if the auditor finds that provision made for depreciation is inade?uate then he is not
re?uired to refer to it in his report.
1;. Under which one of the following methods of depreciation is the amount of the asset never reduced to *ero -
a) Straight line method b) !iminishing balance method c) Sum of \$ear digit method d) .nnuit\$ method

=. 'he main purpose of depreciation accounting is to :
a) 9harge the cost of asset
b) .llocate the cost of the asset over its estimated useful life
c) %rovide for replacement of the assets on the e2pir\$ of its useful life
d) Aalue the assets on the closing date of the \$ear
1. Which one of the following depreciation methods is most suitable for a coal mine -
a) !iminishing balance methods b) !epletion method c) "i2ed installment method d) Sum of \$ear5s digits method
. 9onsider the following statements with respect to the sin#ing @fund method of depreciation :
1. !epreciation is smaller than the .ssets annual depreciation cost.
. .mount of interest constantl\$ declines due to assets reducing balance.
&. .nnual net incidence on profit and loss account remains constant due to changing fi2ed depreciation.
+. %eriodic depreciation is recorded through the asset account.
Which of the above statements are correct -
a) and & b) 1 and & c) 1, and + d) ,& and +
&. .n asset is never reduced to *ero in the :
a) "i2ed installment method b) /educing balance method c) .nnuit\$ method d) Sum of \$ear5s method
+. 'he main obBective of providing depreciation is to :
a) 9reate secret reserves b) /educe the boo# value of assets c) Aalue the assets properl\$ d) .llocate cost of the
assets
0. 4f the total charge of depreciation and maintenance is considered. 'he method which would provide a uniform charge is
a) .nnuit\$ method b) Straight line method c) !iminishing balance method d) 4nsurance polic\$ method
3. What method is applied for investment :
a) .nnual valuation b) !iminishing balance c) !epreciation fund method d) .ll of these
7. )a2imum depreciation and interest accumulate in sin#ing fund method :
a) .sset .ccount b) Sin#ing "und .ccount c) (an# .ccount d) .ll of these
8. 4n !iminishing (alance method :
a) !epreciation decrease ever\$ \$ear b) !epreciation increase ever\$ \$ear
c) !epreciation is constant ever\$ \$ear d) .ll of these
;. Which of the following statement is correct -
a) !epreciation is a capital loss
b) 4nterest is not received under !epreciation fund method.
c) !epreciation is charged on "i2ed and current asset
d) Under !iminishing balance method the value of asset does not become *ero at the end.
&=. Which of the following is,are reason for depreciation -
a) Wears and tear b) <fflu2ion of time c) Obsolescence d) .ll of these
&1. Which of the following is,are necessit\$ for arrangement of depreciation :
a) !etermination of operating e2penses b) "or calculation correct profit
c) "or replacement of .sset d) .ll of these
&. 'he !etermination of amount of depreciation of is based on :
a) !etermination of cost of the .sset b) !etermination of <2pected \$ears of wor#ing life
c) !etermination of .ssets <2pected scrap6value d) .ll of these
CPT SANGITAS CLASSES ACCOUNT
FILL IN THE BLANK
&&. !epreciation of fi2ed assets is an e2ample of .... e2penditure.
a) /evenue b) !eferred revenue c) 9apital d) None of these
&+. 4n the case of downward revaluation of an asset, which is for the first time revalued, .. account is debited.
a) "i2ed .sset b) /evaluation /eserve c) %rofit C :oss account d) >eneral /eserve
&0. 'he portion of the ac?uisition cost of the asset, \$et to be allocated is #nown as ..
a) Written down value b) .ccumulated value c) /ealisable value d) Salvage value
&3. 'he assumption underl\$ing the fi2ed instaliment method of depreciation is that of .. of the asset over different
\$ears of its useful life.
a) Usage b) <?ual usage c) 9harge d) None of these
&7. Scrap value of an asset mean the amount that it can fetch on sale at the DDD.. of its useful life.
a) (eginning b) <nd c) )iddle d) None of these
&8. 'he number of production or similar units e2pected to be obtained from the use of an asset b\$ an enterprise is called as
a) Unit life b) Useful life c) %roduction life d) <2pected life
&;. 4n DDD. method, depreciation is charged b\$ allocating depreciable cost in proposition of the annual output to the probable
life @ time output.
a) Wor#ing hours method b) /eplacement method c) /evaluation method d) %roduction units method
SMALL PARAGRAPH BASED QUESTIONS
+=. Under this method, the annual charge for depreciation decreases from \$ear to \$ear, so that the burden and benefits of later
\$ears are shared b\$ the earlier \$ears. .lso, under this method, the value of asset can never be completel\$ e2tinguished.
'he other advantage of this method is that the total charge to revenue is uniform when the depreciation is high. repairs are
negligibleE and as the repairs increase, the burden of depreciation gets lesser and lesserE 'his method of depreciation is :
a) Straight :ine )ethod b) Written !own Aalue )ethod c) .nnuit\$ )ethod d) Sin#ing "und )ethod
NUMERICAL QUESTIONS
+1. !inesh >arments purchased a machine for /s. 0=,=== and spent /s. 3,=== on its erection. On the data of purchase it was
estimated that the effective life of the machine will be ten \$ears and after ten \$ears its scrap value will be /s.3,===. 'he
amount of depreciation for each \$ear on straight line basis is :
a) /s. 0,=== b) /s. 0,3== c) /s. 3,=== d) None of these
+. .mit :td. purchased a machine on =1.=1.==& for /s. 1,=,===. 4nstallation e2penses were /s. 1=,===. /esidual value after
0 \$ears /s. 0,===. On =1.=1.==&, e2penses for repairs were incurred to the e2tent of /s. ,===. !epreciation is provided
under straight line method. !epreciation rate is 1=F. .nnual !epreciation will be :
a) /s. 1&,=== b) /s. 17,=== c) /s. 1,=== d) /s. 0,===
+&. . machine purchased on 1.+.==& for /s.1=,==,=== was depreciation on straight line basis over its useful life of 1= \$ears.
On 1.+.==0, it was found that machine is in a good condition and will be used in the production for another 1= \$ears. 'he
amount of depreciation for the \$ear, ending &1.&.==3 will be :
a) /s. 1,==,=== b) /s. 8=,=== c) /s. 8&,&&& d) /s. 33.337
++. Out of four of building, ground floor is used as a store house for trading goods, first and second floor is used for office
purpose and third floor is used for residential purposes. 'otal depreciation of a building of a building amounts to /s. 8=,=== .
'he depreciation amount of building to be shown in the business boo#s will be :
a) /s.8=,=== b) /s. 3=,=== c) /s. +=,=== d) /s. =,===
+0. !epreciation amount of the machiner\$ is /s. 11,==,===.'he machiner\$ is e2pected to produce &= la#hs units in its 1= \$ear
life and e2pected distribution of production units is as follows :
16& \$ear 0 lacs units each \$ear
+63 \$ear & lacs units each \$ear
761= \$ear 160 lacs unit each \$ear.
.nnual depreciation for 16& \$ear, using production units method will be :
a) /s. 1,1=,=== b) /s. 00,=== c) /s. 30,=== d) /s. 1,8&,&&&
+3. On 1.1.==0, a machine costing /s. 1=,=== and a piece of furniture costing /s. =,=== was purchased. !epreciation is
provided G 0F on furniture and 1=F per annum on machine. 'he depreciation for the \$ear ended &1 st )arch, ==0
should be :
a) /s. 1,=== b) /s. &== c) /s. 0== d) None of these
CPT SANGITAS CLASSES ACCOUNT
+7. . :td. 9ompan\$ purchase machiner\$ on 1 st .pril,==+ for /s. 1,==,===. 'he depreciation on this machiner\$ is charged G
1=F per annum on straight line method. On &= th October,==3 machiner\$ is sold for /s. 8;,===. 'he profit or loss on sale
of such machiner\$ is :
a) %rofit of /s. 1,=== b) :oss of /s. 1,=== c) %rofit of /s. 1+,=== d) :oss of /s. 3,===
+8. (oo#s of <#ta, shows on 1 st Hanuar\$, ==3 furniture /s. =,===. !uring the \$ear a part of the furniture whose boo# value
on 1 st Hanuar\$,==3 is /s. 1,== has been e2changed with another furniture b\$ pa\$ing additional /s. 0==. <#ta charge
depreciation G 1=F p.a. 'he net amount of the furniture to be shown in the balance sheet will be :
a) /s. 18,0=8 b) /s. =,++= c) /s. 18,&;3 d) /s. 18,+0=
+;. . machine purchased on 1 st .pril, ==+ for /s. 1=,=== is showing a balance of /s. 3,=== as on 1 st .pril, ==3 when
depreciation is charged on S.:.). basis. Now a compan\$ wants to sitch over to W.!.A. method charging depreciation G
=F. 'he amount of e2cess,short depreciation of last two \$ear will be :
a) <2cess depreciation /s.+== b) Short depreciation /s. +==
c) <2cess depreciation /s. 1,3== d) Short depreciation /s. 1,3==
0=. On 1
st
Hanuar\$, ==0,.lpha :td. purchased a machine for /s. 0=,=== and spent /s. +,=== on its carriage and /s. ,=== on
its installation. On the date of purchase, it was estimated that the effective life of the machine will be 1= \$ear and after 1=
\$ears its scrap value will be /s. 3,===. !epreciation is charged on straight line basis. !epreciation for the \$ear ==0 will be :
a) /s. +,3== b) /s. 0,=== c) /s. +,8== d) /s. +,0==
01. .sho# purchased a machine on =1.=1.==0 for /s.1,=,===. 4nstallation e2penses were /s. 1=,===. /esidual value after 0
\$ear /s.0,===. On =1.=7.==0, e2penses for repairs were incurred to the e2tent of /s. ,===. !epreciation is provided
under straight line method. .nnual !epreciation is :
a) 1&,=== b) 17,=== c) 1,=== d) 0,===
0. )achiner\$ costing /s. 1=,==,=== was purchased on 1.+.==3. 'he installation charges amounting /s. 1,==,=== were
incurred. 'he depreciation at 1=F per annual on straight line method for the \$ear ended &1 st )arch, ==7 will be :
a) /s. 1,==,=== b) /s. ,==,=== c) /s. 1,1=,=== d) None of these
0&. . firm purchases a 0 \$ears lease for /s. +=,=== on 1 st Hanuar\$. 4t decides to write off depreciation on the .nnuit\$ method
%resuming the rate of interest to be 0F per annum. 'he annuit\$ for it is =.&=;70. 'he amt of annual depreciation will be :
a) /s. 8,=== b) /s. ,=== c) /s. ;,&; d) /s. 3,===
0+. 'he balance of machine on &1 st )arch, ==3 is /s. 7,;==.'he machine was purchased on 1 st .pril, ==& charging
depreciation G 1=Fp.a. 'he cost price of the machine as one 1 st .pril ==& would be :
a) /s. 1,==,=== b) /s. ;=,=== c) /s. 81,=== d) /s. 7,===
00. 4n the boo#s of ! :td. the machiner\$ account shows a debit balance of /s. 3=,=== as on .pril 1, ==&. 'he machiner\$ was
sold on September &=, ==+ for /s. &=,===. 'he compan\$ charges depreciation G =F p.a. on diminishing balance
method. %rofit,:oss on sale will be :
a) 1&,== profit b) 1&,== loss c) 3,8== profit d) 3,8== loss
03. 4f :td. purchased a machiner\$ on .pril =1, === for /s. &,==,===. 4t is estimated that the machiner\$ will have a useful life of
0 \$ear after which it will have no salvage value. 4f the compan\$ follows sum6of6the6\$ears56digits method of depreciation, the
amount of depreciation charged during the \$ear ==+6=0 was :
a) /s. 1,==,=== b) /s. 8=,=== c) /s. 3=,=== d) /s. =,===
07. . transport compan\$ purchases a truc# for /s.,==,=== on 1 st Hanuar\$, ==0. 4t charges =F depreciation p.a. according
to W.!.A. method. 'he trac# was sold on 1 st Hul\$, ==3 for a sum of /s. 1,3=,===. 'he profit or loss on sale of truc# is :
a) :oss of /s. 13,=== b) %rofit of /s.13,=== c) :oss of /s.1,=== d) %rofit of /s.1,===
08. . lease is purchased on 1 st Hanuar\$, ==0 for + \$ears at a cost of /s. 1,==,===. :ease is to be depreciated b\$ the annuit\$
method charging 0F interest. .nnuit\$ of /e. 1 over + \$ears charging 0F interest is /e. =.8=1. 'he amount of annual
depreciation will be :
a) /s. 8,=1 b) /s.=,=== c) /s. 0,=== d) None of these
0;. 'he balance of furniture C fi2ture as on 1 st .pril, ==0 was /s. 1=,===. "urniture of /s. 0,=== was purchased on 1st Oct,
==0. !epreciation is charged G 1=F on W.!.A. method 'he depreciation for the \$ear ended &1 st )arch, ==3 will be :
a) /s. 1,0== b) /s. 1,0= c) /s. 1,70= d) None of these
3=. . machine purchased on 1 st Hanuar\$, ==& at /s. 10,==,===, having useful life of 10 \$ears was depreciated on straight line
basis. On 1 st Hanuar\$ ==3, the same machine was revalued upward b\$ /s. & lacs. 'he amount of depreciation for the
\$ear ==3 will be :
a) /s. 1,0,=== b) /s. 1,==,=== c) /s. 1,=,=== d) /s.1,0=,===
31. Original cost I /s. 1,3,===E Salvage value I NilE Useful life I 3 \$ears. !epreciation for the first \$ear under sum of \$ears
digits method will be :
a) /s. 3,=== b) /s. 1,=== c) /s. 18,=== d) /s. &3,===
3. Original cost I /s. 1,3,===. Salvage value I 3,===. Useful :ife I 3 \$ear. .nnual depreciation under S:) willl be
CPT SANGITAS CLASSES ACCOUNT
a) /s. 1,=== b) /s. =,=== c) /s. 10,=== d) /s. 1+,===
3&. What entr\$ will be passed on depreciation transferred to profit and loss .,c:
a) %rofit and loss .,c !r. b) !epreciation .,c !r.
'o !epreciation .,c 'o .ssets .,c
c) !epreciation /eserve .,c !r. d) .ssets .,c !r.
'o .ssets .,c 'o (an#

3+. >iven :
9ost of .ssets /s. 1,==,===
Scrap value /s. 0=,===
<stimated life of .ssets = \$ears
'he amount of depreciation will be :
a) /s. 8=,=== b) /s. 1,=,=== c) /s. &=,=== d) None of these
30. What entr\$ will be made on sale of assets-
a) (an# .,c !r. b) .ssets .,c !r.
'o .ssets 'o %rofit and loss .,c
c) %rofit and loss .,c !r. d) .ll of these
'o .ssets
33. >iven : %lant .ccount of J and 9o.
'he rate of depreciation will be :
a) 1=F b) =F c) &=F d) +=F
37. . compan\$ too# over a seven \$ear lease for /s. 0=,===. 4t was decided to recover cost b\$ depreciation method at +F
interest. . reference to sin#ing fund table that /s. =6 1331 will amount to be 1 in 7 \$ears. 'he amt of depreciation will be :
a) /s. 3,&&=.0= b) /s. 3,+== c) /s. 7,3== d) /s. +,===
38. What entr\$ will be made on depreciation provided -
a) !epreciation .,c !r. b) .ssets .,c !r.
'o .ssets .,c 'o !epreciation .,c
c) .ssets .,c !r. d) (an# .,c !r.
'o .ssets .,c 'o %rofit and loss .,c

3;. >iven : 9ost of )achine /s. 1,==,===
<stimated wor#ing life = \$ears
Scrape value Nil
What will be amount of depreciation for & rd \$ear -
a) /s. 0,=== b) /s. 1=,=== c) /s. 10,=== d) .ll of these
7=. . firm contracted to purchase on 1 st Hanuar\$, ==3 a three \$ears lease of a )achine for /s. 1,==,=== and decided to
replace in b\$ means of a !epreciation "und, the investment \$ielding &F interest %... .n annuit\$ of /s. 1 at &F %... amount
of /s. &.=;=; in three \$ears. 'he amount of depreciation will be :
a) /s. +=,=== b) /s. &0,=== c) /s. &,&0+ d) /s. &3,===
71. >iven : %lant and )achiner\$ 1!ep. rate 0F) 1,==,===
:and and (uilding 1!ep. rate 10F) 8=,===
'he total amount of depreciation will be :
a) /s. 1,=== b) /s. 7,=== c) /s. &,=== d) None of these
7. On using reducing balance method on as asset of /s. =,=== at the rate of 1=F per annum, depreciation of & rd \$ear will be
a) /s. 3,=== b) /s. 1,8== c) /s. 1,3= d) /s. ,===
7&. 'he cost of a machine is /s. 7=,===. 4t has 1= @ \$ear life at the end of which it is e2pected to realise /s. 0,===. 'he
depreciation for first four \$ears on a straight line basis is :
a) /s. 8,=== b) /s.3,=== c) /s. ,=== d) /s. =,===
7+. .n asset is purchased for /s. 0=,=== on which depreciation is to be provided annuall\$ according to the straight line method.
'he useful life of the asset is 1= \$ears and the residual value is /s. 1=,===. 'he rate of depreciation is :
a) =F b) 18F c) 1=F d) 8F
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Da! Pa"#\$%&a"' A(. R'. Da! Pa"#\$%&a" A(.
==3 .pr. 1 'o (an# .,c =,=== ==7 )ar.&1 (\$ !epreciation (\$
(alance c,d
,===
18,===
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CPT SANGITAS CLASSES ACCOUNT
DEPRECIATION HOMEWORK - ANSWERS
1. (c) 21. (b) 41. (a) 61. (d)
2. (c) 22. (b) 42. (a) 62. (b)
3. (b) 23. (b) 43. (b) 63. (a)
4. (d) 24. (d) 44. (b) 64. (d)
5. (d) 25. (b) 45. (d) 65. (d)
6. (a) 26. (a) 46. (c) 66. (a)
7. (c) 27. (b) 47. (c) 67. (a)
8. (c) 28. (a) 48. (d) 68. (a)
9. (c) 29. (d) 49. (a) 69. (a)
10. (c) 30. (d) 50. (b) 70. (c)
11. (d) 31. (d) 51. (d) 71. (d)
12. (d) 32. (d) 52. (c) 72. (c)
13. (a) 33. (a) 53. (c) 73. (b)
14. (b) 34. (c) 54. (a) 74. (d)
15. (d) 35. (a) 55. (b)
16. (d) 36. (b) 56. (d)
17. (c) 37. (b) 57. (b)
18. (a) 38. (b) 58. (a)
19. (b) 39. (d) 59. (b)
20. (b) 40. (b) 60. (a)