Question 1: Which of the following methods of depreciation is not recognized by Income
Tax Law?
(a) Straight Line Method
(b) Diminishing Balance Method
(c) Both a and b
(d) None of the Above
Question 2: Which of the following is the example of Capital Reserve?
(a) Workmen’s Compensation Fund
(b) General Reserve
(c) Premium Received on issue of shares or debentures
(d) None of these
Question 3: Asset Disposal A/c is prepared when :
(a) Asset A/c is prepared
(b) Profit & Loss A/c is prepared
(c) Provision for Depreciation A/c is prepared
(d) Depreciation A/c is prepared
Question 4: Which of the following is the cause of depreciation?
(a) By permanent fall in prices
(b) By constant use
(c) By Expiry of time
(d) All of the Above
Question 5: Dividend Equalisation Reserve is :
(a) General Reserve
(b) Specific Reserve
(c) Secret Reserve
(d) None of these
Question 6: Which method of depreciation suffers from the limitation of unequal
burden on profit and loss account?
(a) Annuity method
(b) Reducing Balance Method
(c) Depletion Method
(d) Fixed Instalment Method
Question 7: As per the Original Cost method which is the correct formula for
calculating Annual depreciation?
(a) Depreciation = Scrap value – Cost of asset / Estimated life of asset
(b) Depreciation = Cost of asset Scrap value/ Estimated life of asset
(c) Depreciation = Cost of asset – Market value / Estimated life of asset
(d) Depreciation = Cost of asset – Scrap value/ Market value of asset
Question 8: According to the Companies Act, 1956, secret reserves can be created by:
(a) Only private company
(b) Banking and insurance companies
(c) Only public company
(d) Companies registered under the Companies Act
Question 9: Depreciation is charged on:
(a) Fixed tangible assets
(b) Current assets
(c) Both current and fixed assets
(d) None of the above
Question 10: If the amount of any known liability cannot be determined with
substantial accuracy:
(a) A reserve should be created
(b) A Contingent liability should be created
(c) A definite liability should be created
(d) A provision should be created
Answer Key
Answer 1 (a) Straight Line Method
Answer 2 (c) Premium Received on issue of shares or debentures
Answer 3 (c) Provision for Depreciation A/c is prepared
Answer 4 (d) All of the Above
Answer 5 (b) Specific Reserve
Answer 6 (d) Fixed Instalment Method
(b) Depreciation = Cost of asset Scrap value/ Estimated
Answer 7
life of asset
Answer 8 (b) Banking and insurance companies
Answer 9 (a) Fixed tangible assets
Answer 10 (d) A provision should be created
Q1. The main objective of depreciation is
(a) To show the previous profit
(b) To calculate net profit
(c) To reduce tax
(d) To satisfy the tax department
Answer: B
Q2. Depreciation is generated due to
(a) Increase in the value of liability
(b) Decrease in capital
(c) Wear and tear
(d) Decrease in the value of assets
Answer: C
Q3 What is the purpose of making a provision for depreciation in the
accounts?
(a) To charge the cost of fixed assets against profits
(b) To show the current market value of fixed asset
(c) To make cash available to replace fixed assets
(d) To make a provision for repairs
Answer: A
Q4. According to straight line method of providing depreciation, the
depreciation
(a) Remains constant
(b) Increase each year.
(c) Decrease each year
(d) None of them.
Answer: A
Q5. Total amount of depreciation of an asset cannot exceed its
(a) Depreciable value
(b) Scrap value
(c) Market value
(d) None of these
Answer: A
Q6. According to fixed instalment method, the depreciation is calculated on
(a) Balance amount
(b) Original cost
(c) Scrap value
(d) None of them
Answer: B
Q.7 Salvage value means
(a) Definite sale price of the asset
(b) Cash to be received when life of the asset ends
(c) Cash to be paid when asset is disposed off
(d) Estimated disposal value
Answer: D
Q8. Depreciation is calculated under diminishing balance method, based on
(a) Original value
(b) Book value
(c) Scrap value
(d) None of them
Answer: B
Q9. Depreciation amount charged on a machinery will be debited to:
(a) Repair account
(b) Cash account
(c) Depreciation account
(d) Machinery account
Answer: C
Q10. In accounting, becoming out of date or obsolete is known as
(a) Amortization
(b) Obsolescence
(c) Depletion
(d) Physical deterioration
Answer: B
