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Depreciation


1. Original cost of a machine = Rs. 1,30,000
Salvage value = Rs. 4,000
Useful life = 6 years
Depreciation for the 1
st
years under sum of years digit method will be:
(a) Rs. 6,000 (b) Rs. 12,000 (c) Rs. 18,000 (d) Rs. 36,000
Ans: (d)
2. Under annuity method, the amount of depreciation is:
(a) Increasing every year
(b) Decreasing every year
(c) Revalued every year
(d) Remains fixed for all the years
Ans: (d)
3. An assets was purchased for Rs. 12,500 and was depreciated under Reducing
Balance Method at the rate of 20% p.a. what is the value of the asset at the end of
three years?
(a) Rs. 8,000 (b) Rs. 7,500 (c) Rs. 6,400 (d) Rs. 5,000
Ans: (c)
4. The main objective of providing depreciation is to :
(a) Reduce tax burden
(b) Provide funds for replacement of fixed asset
(c) Show true financial position in the balance sheet
(d) Company with legal requirements.
Ans: (b)
5. Original cost of an asset Rs. 2,52,000, Salvage value Rs. 12,000 Depreciation for
2
nd
year @ 10% p.a. under W.D.V method will be:
(a) Rs. 21,600 (b) Rs. 22,680 (c) Rs. 30,000 (d) Rs.28,000
Ans: (b)
6. Useful life of an asset can be described as:
(a) The period over which a depreciated asset is expected to be used by the
enterprise.
(b) The number of production or similar units expected to be obtained form the
use of the asset by the enterprise.
(c) 10 years (d) both (a) and (b)
Ans: (d)
7. Amortization refers to writing off:
(a) Depleting assets (b) Wasting assets
(c) Intangible assets (d) Fictitious assets
Ans: (c)
8. The W.D.V of an assets after three years of depreciation on the reducing balance
method @ 10% p.a. is Rs. 36,450. What was its original value?
(a) Rs. 40,000 (b) Rs. 50,000 (c) Rs. 45,000 (d) Rs. 70,250
Ans: (b)
9. The cost of ma machine having a span of life of 5 years is Rs. 1,00,000 with a
scrap value of Rs. 10,000. The amount of depreciation under sum of years digit
method for the second year will be:
(a) Rs. 16,000 (b) Rs. 18,000 (c) Rs. 12,000 (d)Rs. 24,000
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Ans: (d)
10. Which method of depreciation takes into account the element of Interest on
Capital outlay:
(a) Depletion method (b) Annuity method
(c) S.L.M Method (d) W.D.V Method
Ans: (b)
11. Under which Schedule is the depreciation rate mentioned ?
(a) Schedule X (b) Schedule XII
(c) Schedule XIV (d) Schedule XV
Ans: (c)
12. Cost of an asset Rs. 75,000. Useful life is 4 years. Find out the depreciation for the
1
st
years under sum of years digit method:
(a) Rs. 30,000 (b) Rs. 7,500 (c) Rs. 22,500 (d) Rs. 15,000
Ans: (a)
13. On 1
st
January, 2006 A Ltd. purchased a machine for Rs. 50,000 and spent Rs.
4,000 on its carriage and Rs. 2,000 on its installation. Its useful life is 10 years and
scarp value is Rs. 6,000. Depreciation for the year under fixed installment method
will be:
(a) Rs. 4,600 (b) Rs. 5,000 (c) Rs. 4,800 (d) Rs. 4,500
Ans: (b)
14. Scarp value of an assets means the amount that it can fetch on sale at the _____ of
its useful life:
(a) Beginning (b) End (c) Middle (d) None
Ans: (b)
15. A machine of Rs. 3,000 was sold for Rs. 4,2000. Depreciation provision to date
was Rs. 400 and commission paid to selling agent was Rs.420 and wages paid to
workers for removing the machine was Rs.30. profit on sale of machine will be :
(a) Rs. 1,200 (b) Rs. 1,000 (c) Rs. 1,150 (d) None of these
Ans: (c)
16. Under Annuity method Assets A/c is debited by
(a) Interest A/c (b) Depreciation fund A/c
(c) Sinking fund A/c (d) None of these
Ans: (a)
17. Depreciation is the process off:
(a) Assets valuation (b) Verification of assets
(c) Allocation of cost of assets to the period of its life
(d) Decreasing the value of asset
Ans: (c)
18. Original Cost = Rs. 1,26,000
Salvage Value = Rs 6,000
Useful Life = 6 years
What will be the book value of the asset as at the beginning of fourth year :
(Under Sum of years digits method)
(a) Rs. 1,03,143 (b) Rs. 40,286 (c) Rs. 45,987 (d) Rs.99,256
Ans: (b)
19. Obsolescence means decline in the value due to:
(a) Fall in the market price
(b) Physical wear and tear
(c) Efflux of time
(d) Innovations and inventions
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Ans: (d)
20. Annuity method is designed for which of the following:
(a) Leases (b) Intangibles
(c) Fixed Assets (d) Any of above
Ans: (a)
21. Cost of a machine =Rs. 1,12,500
Salvage value =Rs. 10,500
Useful Life = 5 years
Depreciation for the last year using the Sum of digits method will be:
(a) Rs. 6,800 (b)Rs. 20,400 (c) Rs.34,000 (d) Rs.27,200
Ans: (a)
22. 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 above
Ans: (b)
23. A trader purchased a machinery for Rs. 10,000 in Jan 2004. Depreciation is
charged @ 25%. Diminishing balance. At the end of third year it was sold for Rs.
1,000. Profit or Loss on sale of machine will be :
(a) Profit Rs. 2,400 (b) Profit Rs. 2,300
(c) Loss Rs. 2,406 (d) Loss Rs. 3,219
Ans: (d)
24. Cost of machinery Rs. 2,52,000
Salvage value Rs. 12,000
Useful life 6 years
Annual depreciation under straight line method will be:
(a) Rs. 42,000 (b) Rs. 40,000 (c) Rs.15,000 (d) Rs. 28,000
Ans: (b)
25. Which of the following is Depleted?
(a) Land (b) Goodwill (c) Machinery (d) Coal Mines
Ans: (d)
26. A machine was purchased on 1
st
April, 2007 for Rs. 5,00,000 and 1
st
October,
2007 for Rs. 2,00,000. Calculated depreciation @ 20% p.a. on written down value
method for the year ending 31
st
March 2008.
(a) Rs. 1,00,000 (b) Rs. 1,40,000 (c) Rs. 40,000 (d)Rs. 1,20,000
Ans: (d)
27. A machinery is depreciated by Rs. 2,000 every year which method is being used
to calculated depreciation?
(a) Written Down value method
(b) Straight line method
(c) Sum of Years Digit method
(d) None of these
Ans: (b)
28. A purchased a mine for Rs. 2,50,000 minerals in the mine were expected to be
5,00,000 tonnes. In the first years, 50,000 tonnes of minerals were used. What is
the depreciation for the first year?
(a) Rs. 20,000 (b)Rs. 25,000 (c)Rs.30,000 (d) Rs. 35,000
Ans: (b)
29. Original cost = Rs. 1,00,000, Life = 5 Years. Expected salvage value = Rs. 2,000.
Rate of depreciation p.a. = ?
(a) 19.6% (b) 20% (c) 19.8% (d) 20.8%
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Ans: (a)
30. Price of the computer = Rs. 50,000 Residual value = Rs. 10,000 hours worked for
the year = 6,000 hrs. estimated life of computer = 20,000 hrs. Calculate the
amount of deprecation.
(a) Rs.15,000 (b) Rs. 12,000 (c) Rs. 20,000 (d) Rs. 24,000
Ans: (b)
31. A machine was purchased for Rs. 50,000, installation expenses amounted to Rs.
4,000 were paid on installation. The scrap value at the end of its useful life of 10
years is Rs. 6,000 Repairs of Rs. 6,000 was made after 6 months from the date of
purchase. Calculate depreciation
(a) Rs. 5,600 (b) Rs. 4,800 (c) Rs. 5,000 (d) None
Ans: (c)
32. Which method of depreciation is suitable when expenditure on repairs and
maintenance, increases as the machine grows old?
(a) Reducing balance method
(b) Straight line method
(c) Machine hour rate method
(d) Sinking fund method.
Ans: (a)
33. A machinery is purchased for Rs. 10,000. On 1
st
April, 2005. Depreciation @ 10%
p.a. is provided. Calculate the amount of difference in depreciation as per SLM
and WDV basis in the year 2006-07.
(a) Rs. 1,000 (b) Rs.100 (c) NIL (d) Rs. 200
Ans: (b)
34. A mine was taken on lease for Rs.2,00,00,000. Its total production capacity is
4,00,000 mt. what will be the depreciation in 2007 if it produced 30,000 m.t. in
2007?
(a) Rs. 10 lacs (b) Rs. 15 lacs (c) Rs. 50 lacs (d) None of these
Ans: (b)
35. A machine is purchased for Rs. 1,00,000. Installation charges of Rs. 10,000 were
incurred Depreciation @ 10% was provided on Staright Line Basis. The machine
was sold for Rs. 60,000 after 5 years. Calculate the profit or loss on sale of
machine.
(a) Rs. 5,000 Loss (b) Rs. 5,000 Profit
(c) Rs. 60,000 Profit (d) Rs 40,000 Loss
Ans: (b)
36. Which of the following is the meaning of entry stated in the machinery A/c
Dr. Machine A/c (2008 - 09) Cr.
Date Particulars Amount Date Particulars Amount
31.3.09 To Dep. A/c 4,000
(a) Depreciation provided at the year and Rs. 4,000.
(b) Depreciation provided reversed to the extent of Rs. 4,000
(c) Machinery appreciated by Rs.4,000
(d) None of the above
Ans: (b)
37. Depletion method of depreciation is normally applied in case of ____ assets
(a) Intangible (b) Tangible (c) Wasting (d) Current
Ans: (c)

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38. ______ Method of depreciation takes into account the element of interest on
capital outlay and seeks to write off the value of the asset as well as the interest
lost over the life of the asset:
(a) Sum of years digit (b) Annuity
(c) Sinking Fund (d) Straight line
Ans: (b)
39. If the rate of depreciation is same then the amount of depreciation under Straight
Line Method vis--vis Written Down Value Method will be:
(a) Equal in all years
(b) Equal in first years but higher in subsequent year
(c) Equal in the first year but lower in subsequent years.
(d) Lower in the first year but equal in subsequent years.
Ans: (b)
40. Vijay Traders purchased Car on 1.4.08 for Rs. 3,00,000. They are charging
depreciation on written Down Value method. On 31.3.09 they sold the Car for Rs.
1,65,000 and incurred a loss of Rs. 75,000. The rate of depreciation p.a. is :
(a) 10% (b) 15% (c) 20% (d) 25%
Ans: (c)
41. A purchased a computer on 1.4.06 for Rs. 60,000. He purchased another
computer on 1.10.07 for Rs . 40,000. He charges depreciation @ 20% p.a. on
straight line method. What will be closing balance of computers as on 31.3.09 ?
(a) Rs. 40,000 (b) Rs. 64,000 (c) Rs. 52,000 (d)Rs. 48,000
Ans: (c)
42. Depreciation is to be calculated from the date of:
(a) Assets put to use
(b) Purchase order of asset
(c) Receipt of asset at business premise
(d) Invoice of Assets
Ans: (a)
43. According to the Income Tax Act. Which method of charging depreciation is
provided?
(a) Reducing Balance Method
(b) Sinking fund
(c) Annuity Method
(d) Straight Line Method
Ans: (a)
44. Which method of depreciation is effective. If repairs and maintenance cost of an
assets increases as it grows old:
(a) Straight Line Method
(b) Sinking fund
(c) Annuity
(d) Reducing Balance
Ans: (d)
45. Original cost of an asset is Rs. 1 lacs. WDV = Rs. 40,000, sold for Rs. 90,000.
What will be the profit on its sales?
(a) Loss of Rs. 50,000
(b) Profit of Rs. 60,000
(c) Profit of Rs. 50,000
(d) Loss of Rs. 10,000
Ans: (c)
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46. A machine was bought at a cost of Rs. 5 lacs on 1.1.02. during its life of 10 years,
it will be depreciated on SLM basis, on 31.12.08, the machine was sold for Rs.
50,000. Find out the profit/loss?
(a) Loss of Rs. 1,50,000
(b) Loss of Rs. 1,00,000
(c) Profit of Rs. 1,00,000
(d) Profit of Rs. 1,50,000
Ans: (b)