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Depreciation, Provisions and Reserves

This set of MCQs helps students to learn about various important things such as, explain the meaning of depreciation and distinguish it from amortisation and depletion, state the need for charging depreciation and identify its causes, compute depreciation using straight line and written down value methods, record transactions relating to depreciation and disposition of assets, explain the meaning and purpose of creating provisions and reserves, distinguish between reserves and provisions, explain the nature of various types of provisions and reserves including secret reserve.

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Asset Disposal A/c is prepared when :

Provision for Depreciation A/c is prepared Asset A/c is prepared Profit & Loss A/c is prepared Depreciation A/c is prepared

Which of the following is the example of Capital Reserve?

Workmen’s Compensation Fund None of these Premium Received on issue of shares or debentures General Reserve

Which of the following is the example of Revenue Reserve?

Profit on Redemption of Debentures Profit on Revaluation of Fixed Investment Fluctuation Fund Profit on Re-issue of forfeited shares

Dividend Equalisation Reserve is :

Specific Reserve None of these Secret Reserve General Reserve

General Reserves are shown in :

Revaluation Account Profit and Loss Account None of these Balance Sheet

Under which depreciation method the amount of depreciation expenses remains same throughout the useful life of a fixed asset

Straight line method Reducing balance method Number of units produced method Machine hours method

What is depreciation?

Cost of using a fixed asset The value of asset Portion of a fixed assets cost consumed during the current accounting Cost of fixed asset’s repair

Which method of depreciation suffers from the limitation of unequal burden on profit and loss account?

Fixed Instalment Method

Reducing Balance Method

Depletion Method

Annuity method

Which method of charging depreciation is accepted by Income Tax Act?

Written down value method

Both Written down value method and Straight Line method

Straight Line method

None of the above

Depreciation helps in determining,

Accurate level of profit

Increases the value of asset

Revenue generation

Increase the burden of tax

Which of the following is not a type of reserve.

Provision for bad debt

General reserve

Workmen compensation fund

Retained earnings

What is the rate of charging depreciation under diminishing method?

12% p.a.

15% p.a.

10% p.a.

Not fixed
Which of the following is the cause of depreciation?

By permanent fall in prices

By constant use

By Expiry of time

All of the Above

 What Journal Entry will be passed: Value of asset being sold transferred to Asset Disposal Account?

Asset Disposal A/c Dr

Asset A/c Cr

Asset A/c Dr

Asset Sale A/c Dr

Depreciation is a process of:

Allocation of cost

None of the above

Valuation of asset

Both valuation of asset and allocation of cost
Quiz/Test Summary
Title: Depreciation, Provisions and Reserves
Questions: 15
Contributed by:
Steve
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Commerce Accounting