Tag: depreciation, provision and reserve

Questions Related to depreciation, provision and reserve

Depletion term is used in case of intangible assets.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. True

  2. False

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Correct Option: B
Explanation:

The term 'Depletion' refers to the physical deterioration by the exhaustion of natural resources (ore-deposits in mines, oil wells, quarries, timber stands etc.)

For the purpose of intangible assets, the term 'Amortization' is used. It refers to the economic deterioration by the expiation of intangible assets such as patents, goodwill etc. 

Type of asset on which depreciation is provided is known as _________ .

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Fixed Asset

  2. Current Asset

  3. Liquid Asset

  4. None of these

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Correct Option: A

Double-declining method is often used in ________.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Singapore

  2. South Africa

  3. Japan

  4. India

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Correct Option: D

Depreciation is to be calculated from the date of _____________________.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Asset put to use

  2. Purchase order of asset

  3. Receipt of asset at business premise

  4. Invoice of assets.

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Correct Option: A
Explanation:

The expense is recognized and reported when the asset is placed into use and is calculated for each accounting period and reported under Accumulated Depreciation on the balance sheet and Depreciation Expense on the income statement. The amount reduces both the asset's value and the accounting period's income.

Which of the following is Depleted?

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Furniture

  2. Goodwill

  3. Machinery

  4. Coal Mines

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Correct Option: D
Explanation:

Depreciation and Depletion: In fact, the term 'depletion' is used in respect of the extraction of natural resources like quarries, and mines, that reduces the availability of quantity of the material or asset. Depreciation, as stated earlier, is a loss in value of an asset generally arising on account of wear and tear.

Depletion method depreciation is normally applied in case of _________ assets.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Intangible

  2. Tangible

  3. Wasting

  4. Current

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Correct Option: C
Explanation:

Wasting Assets are the asset that has a limited life and thus decreases in value (depreciates) over time.

The term depletion is used in the context of extraction of natural resources like mines, quarries, etc. that reduces the availability of the quantity of the material or asset.

Hence Depletion method depreciation is normally applied in case of wasting assets.

Which one of the following depreciation methods is most suitable for a coal mine?

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Diminishing balance method

  2. Depletion method

  3. Fixed instalment method

  4. Sum of year's digits method

Show answer
Correct Option: B
Explanation:

Depletion method of depreciation is most suitable for coal mine. This method is specially used for those assets which deplete with use. The cost of the asset is divided by total workable deposits. For example :

If a mine has 2 lakh tons of coal and the value of mine is Rs. 5 lakhs, each ton of coal will cost Rs. 2½. The quantity of coal taken out of the mine in a period will be multiplied by the rate per ton, i.e., Rs. 2½ and the resultant figure will be the amount of depreciation.

Match List-I with List-II and select the correct answer using the codes given the lists.

List-I List-II
I. Amortisation (a) Diminition in the life of the assets due to excessive use
II. Depreciation (b) Exhaustion of natural resource
III. Depletion (c) Expiration of tangible assets
IV. Obsolescence (d) Expiration of intangible assets
(e) Economic deterioration due to improved inventions
depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. I-(a), II-(b), III-(c), IV-(d)

  2. I-(a), II-(b), III-(d), IV-(e)

  3. I-(e), II-(b), III-(c), IV-(d)

  4. I-(d), II-(c), III-(b), IV-(e)

Show answer
Correct Option: D
Explanation:

1.    Amortization is used for expiration of intangible assets.

2.   Depreciation is used for expiration of tangible assets.
3.    Depletion allocates the cost of associated with using an assets , in case reduction of a natural resources.
4.   Obsolescence means economic deterioration due to improved invention i.e older version has passed and a new version was already on the market. So, here the D option is right answer.
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Match List-I with List-II and select the correct answer using the codes given the lists.

List-I List-II
I. Uncertain liability (a) Amortisation
II. Expiry of tangible asset (b) Long-term liability
III. Basis for all valuations in the balance sheet (c) Research and development
IV. Accounting standard-As-$8$ (d) Estimated obligation
(e) Conservation convention
depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. I-(e), II-(a), III-(b), IV-(c)

  2. I-(d), II-(c), III-(e), IV-(a)

  3. I-(e), II-(c), III-(d), IV-(a)

  4. I-(d), II-(a), III-(e), IV-(c)

Show answer
Correct Option: D
Explanation:

Option D is the Correct one.

AS 8 - Accounting for Research & Development
Amortization: the action or process of gradually writing off the initial cost of an asset.

Provisions are present obligations or liabilities but with uncertain amounts. The amounts can only be measured with a substantial estimation. Contingent liabilities are possible obligations.

This accounting convention is generally expressed as to “anticipate all the future losses "

This convention generally applies to the valuation of current assets as they are basis for preparing financial statements to facilitate comparison of financial statements on period to period basis.

__________ reduces the availability of the quantity of the material or asset.

depreciation and causes of depreciation depreciation, provision and reserve depreciation accountancy

  1. Depletion

  2. Amortisation

  3. Depreciation

  4. Appreciation

Show answer
Correct Option: A
Explanation:

Depletion.

Depletion is an accounting and tax concept used most often in mining, timber, petroleum, or other similar industries. The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Depletion is similar to depreciation in that it is a cost recovery system for accounting and tax reporting.

Depletion for both accounting purposes and united states tax purposes, is a method of recording the gradual expense or use of natural resources over time. Depletion is using up of natural resources by mining, drilling, or felling.