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Account 1 Marks Question

Depreciation · CBSE STD 11 Commerce (CBSE - English Medium). 27 questions.

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27 questions · timed · auto-graded

Question 11 Mark
What is the difference between Straight Line Method and Diminishing Balance Method of charging Depreciation? (Any two)
Answer
  1. Under the Straight Line Method of Depreciation, Depreciation is uniform year after year whereas under the Written Down Value Method, it reduces every year.
  2. Depreciation under the Straight Line Method is calculated at a fixed percentage on the original cost whereas under the Written Down Value Method, it is calculated on original cost (in first year) and on written down value in subsequent years.
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Question 21 Mark
Do you agree that Depreciation is a permanent, continuing and gradual reduction in the book value of a fixed asset?
Answer
Yes, Depreciation is permanent, continuing and gradual shrinkage in the book value of a fixed asset.
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Question 31 Mark
What are the demerits of Straight Line Method? (Any two)
Answer
Demerits of Straight Line Method are:
  1. Interest element on capital is ignored.
  2. Repair and Maintenance cost which is likely to be more in later years is not considered.
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Question 41 Mark
What are the merits of Written Down Value Method? (Any two)
Answer
Merits of Written Down Value Method are:
  1. It takes into consideration repairs and maintenance cost in the later years.
  2. It is accepted by the Income Tax Act.
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Question 51 Mark
What is meant by Asset Disposal Account?
Answer
Asset Disposal Account means that the cost of the asset and also the provision for depreciation is transferred to the account at the time of its sale (disposal). The sale proceeds are credited to the account and gain (profit) or loss on sale on its disposal is determined.
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Question 61 Mark
Under which method of depreciation asset is depreciated more in the initial years as compared to the later years of its life?
Answer
Written Down Value Method.
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Question 71 Mark
What are the merits of Straight Line Method? (Any two)
Answer
Merits of Straight Line Method are:
  1. It is a simple method of providing depreciation.
  2. Assets can be depreciated up to the estimated residual value.
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Question 81 Mark
What is the impact of GST Collected at the time of sale of asset on profit or loss?
Answer
GST Collected does not have any impact on profit or loss, it being a liability of the firm to deposit in Government Account.
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Question 91 Mark
Depreciation is a cash expenditure like other normal expenses. Comment.
Answer
Depreciation is a non-cash expenditure because it does not involve any cash outflow.
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Question 101 Mark
What are the demerits of Written Down Value Method? (Any two)
Answer
Demerits of Written Down Value Method are:
  1. It is difficult to ascertain the correct rate of depreciation.
  2. Under this method, value of asset cannot be zero.
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Question 111 Mark
Which method of Depreciation assumes that an asset should be depreciated more in the earlier years and less in the later years of use?
Answer
Diminishing Balance Method or Written Down Value Method of Depreciation assumes that the asset should be depreciated more in the earlier years and less in the later years of use.
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Question 121 Mark
Land is a depreciable asset. Comment.
Answer
Land is not depreciated because its useful life is unlimited.
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Question 131 Mark
Give two methods of providing Depreciation.
Answer
Methods of computing depreciation are:
  1. Straight Line Method.
  2. Written Down Value Method.
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Question 141 Mark
M/s Business Services has not used its CNC Bending Machine No. 10 during the year. Hence, the accountant has not provided Depreciation on it. Do you consider it to be correct? Give your reasons.
Answer
No, I do not consider it to be correct because an asset does not depreciate only because of its use but also because of the efflux of time. Although CNC Bending Machine No. 10 has not been used, its value must have declined because of efflux of time.
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Question 151 Mark
Give the formula to calculate the Annual Depreciation as per 'Straight Line Method'.
Answer
Annual Depreciation $=\frac{\text{Cost of Asset - Estimated Scrap Value}}{\text{Number of Years of Expected Useful Life}}$
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Question 161 Mark
What is Accumulated Depreciation?
Answer
It is the total depreciation already charged as expense in different accounting periods.
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Question 171 Mark
What is the impact of GST Paid at the time of purchase of machinery on depreciation.
Answer
GST Paid does not have any impact on depreciation since GST Paid is not a cost of asset. it is set-off against GST Collected.
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Question 191 Mark
What is the residual or scrap value of the asset?
Answer
It is the estimated value of a fixed asset at the end of its estimated useful life. It is the amount which is expected to be received when the asset is sold at the end of its useful life.
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Question 201 Mark
What are the objectives of providing Depreciation?
Answer
  1. To ascertain correct profit or loss.
  2. To show the assets at their proper value.
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Question 211 Mark
What are the factors involved in providing Depreciation?
Answer
Factors involved in providing depreciation are:
  1. Historical cost of the asset.
  2. Estimated residual value of the asset at the end of its useful life.
  3. Estimated effective life of the asset.
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Question 231 Mark
Ram & Co. purchased a machinery for ₹ 21,000 on 1st April, 2019. The estimated life of the machinery is 10 years, after which its residual value will be ₹ 1,000 only. Find the amount of Annual Depreciation according to the Fixed Instalment Method. Ignore GST.
Answer
Annual Depreciation $=\frac{\text{Purchase value - residual value}}{\text{Estimated life of the machinery}}$
$=\frac{21000-1000}{10}$
$=\frac{20000}{10}$
$=2000$
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Question 241 Mark
What is meant by Straight Line Method of providing Depreciation?
Answer
Straight Line Method of providing depreciation means depreciation is calculated at a percentage of original cost. Depreciation remains uniform from year to year.
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Question 251 Mark
What is book value or written down value of a fixed asset?
Answer
It is the portion of the cost of a fixed asset which has not yet been depreciated. The book value of an asset is its cost when it is acquired. Thereafter, it is the cost less accumulated depreciation.
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Question 261 Mark
On 1st April, 2015, Grand Ltd. purchased a machinery for ₹ 3,00,000 and incurred ₹ 21,000 towards freight and insurance, ₹ 3,000 towards carriage inwards and ₹ 6,000 towards installation charges. It has estimated that the machinery will have a scrap value of ₹ 30,000 at the end of the useful life which is four years. What will be the annual depreciation and the value of machinery after four years according to the Straight Line Method? Ignore GST.
Answer
Annual Depreciation $=\frac{\text{Purchase value + freight + insurance + carriage inwards - scrap value}}{\text{Estimated life of the machinery}}$
$=\frac{300000 + 21000 + 3000 + 6000 - 30000}{4}$
$=\frac{300000}{4}$
$=75000$
Scrap value of ₹ 30,000 at the end of the useful life which is four years.
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Question 271 Mark
What is meant by Written Down Value Method of providing Depreciation?
Answer
Written Down Value Method of providing depreciation means depreciation is calculated and charged at a fixed rate on written down value of the asset every year.
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