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    MCQ Fa (Unit 3)

    Uploaded by

    Udit Singhal
    This document contains 25 multiple choice questions related to depreciation, provisions, reserves and accounting for fixed assets. The questions cover topics such as methods of depreciation recognized by tax law, when an asset disposal account is prepared, examples of capital and revenue reserves, where depreciation is charged in the accounts, causes of depreciation, and the treatment of accumulated depreciation expenses. Each question is followed by a short answer identifying the correct multiple choice response.

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    MCQ Fa (Unit 3)

    Uploaded by

    Udit Singhal
    281 views10 pages
    This document contains 25 multiple choice questions related to depreciation, provisions, reserves and accounting for fixed assets. The questions cover topics such as methods of depreciation recognized by tax law, when an asset disposal account is prepared, examples of capital and revenue reserves, where depreciation is charged in the accounts, causes of depreciation, and the treatment of accumulated depreciation expenses. Each question is followed by a short answer identifying the correct multiple choice response.

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    MCQ FA (UNIT 3)

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    This document contains 25 multiple choice questions related to depreciation, provisions, reserves and accounting for fixed assets. The questions cover topics such as methods of depreciation recognized by tax law, when an asset disposal account is prepared, examples of capital and revenue reserves, where depreciation is charged in the accounts, causes of depreciation, and the treatment of accumulated depreciation expenses. Each question is followed by a short answer identifying the correct multiple choice response.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    281 views10 pages

    MCQ Fa (Unit 3)

    Uploaded by

    Udit Singhal
    This document contains 25 multiple choice questions related to depreciation, provisions, reserves and accounting for fixed assets. The questions cover topics such as methods of depreciation recognized by tax law, when an asset disposal account is prepared, examples of capital and revenue reserves, where depreciation is charged in the accounts, causes of depreciation, and the treatment of accumulated depreciation expenses. Each question is followed by a short answer identifying the correct multiple choice response.

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    FA Questions

    Unit 3

    Depreciation, Provisions and Reserves

    Question1.
    Which of the following methods of depreciation is not recognized by Income Tax Law?
    (a) Straight line Method
    (b) None of these
    (c) Both, Straight Line and Diminishing Balance Methods
    (d) Diminishing Balance Method

    Answer

    Answer: (a) Straight line Method

    Question 2.
    Asset Disposal A/c is prepared when :
    (a) Provision for Depreciation A/c is prepared
    (b) Asset A/c is prepared
    (c) Profit & Loss A/c is prepared
    (d) Depreciation A/c is prepared

    Answer

    Answer: (a) Provision for Depreciation A/c is prepared

    Question 3.
    Which of the following is the example of Capital Reserve?
    (a) Workmen’s Compensation Fund
    (b) None of these
    (c) Premium Received on issue of shares or debentures
    (d) General Reserve

    Answer

    Answer: (c) Premium Received on issue of shares or debentures


    Question 4.
    Which of the following is the example of Revenue Reserve?
    (a) Profit on Redemption of Debentures
    (b) Profit on Revaluation of Fixed
    (c) Investment Fluctuation Fund
    (d) Profit on Re-issue of forfeited shares

    Answer

    Answer: (c) Investment Fluctuation Fund

    Question 5.
    Dividend Equalisation Reserve is :
    (a) Specific Reserve
    (b) None of these
    (c) Secret Reserve
    (d) General Reserve

    Answer

    Answer: (a) Specific Reserve

    Question 6.
    General Reserves are shown in :
    (a) Revaluation Account
    (b) Profit and Loss Account
    (c) None of these
    (d) Balance Sheet

    Answer

    Answer: (d) Balance Sheet


    Question 7.
    According to 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 Companies Act

    Answer

    Answer: (b) Banking and insurance companies

    Question 8.
    The loss on sale of an asset is debited to:
    (a) Profit and Loss Account
    (b) Trial Balance Cr. Side
    (c) Balance Sheet
    (d) Trading Account

    Answer

    Answer: (a) Profit and Loss Account

    Question 9.
    Depreciation is Charged on :
    (a) Current Assets
    (b) Fixed Tangible Assets
    (c) None of these
    (d) Both Current and Fixed Assets

    Answer

    Answer: (b) Fixed Tangible Assets


    Question 10.
    At the end of the year, Depreciation Account is transferred to :
    (a) Balance Sheet
    (b) Trading Account
    (c) Profit & Loss Appropriation Account
    (d) Profit & Loss Account

    Answer

    Answer: (d) Profit & Loss Account

    Question 11.
    Provision is created by debiting :
    (a) Profit and Loss Account
    (b) None of these
    (c) Profit and Loss Appropriation Account
    (d) Trading Account

    Answer

    Answer: (a) Profit and Loss Account

    Question 12.
    The cause of Depreciation is :
    (a) Wear and tear
    (b) Obsolescence
    (c) All of these
    (d) Usage of Asset

    Answer

    Answer: (c) All of these


    Question 13.
    Depreciation is a process of :
    (a) Allocation
    (b) Valuation
    (c) None of these
    (d) Depletion

    Answer

    Answer: (a) Allocation

    Question 14.
    Under Reducing Balance Method, depreciation to be charged :
    (a) Scrap Value
    (b) None of these
    (c) Real Value
    (d) Original value

    Answer

    Answer: (b) None of these

    Question 15.
    The depreciation charged on an asset will be credited to :
    (a) Depreciation A/c
    (b) Asset A/c
    (c) Bank A/c
    (d) Cash A/c

    Answer

    Answer: (b) Asset A/c


    Question 16.
    Every fixed asset loses its value due to use or other reasons. This decline in the value of asset
    is known as
    (a) Amortization
    (b) Provisions
    (c) Depreciation
    (d) Devaluation

    Answer

    Answer: (c) Depreciation


    Explanation:
    The fixed assets are long-term assets. They help in the production of goods and services.
    However, when an asset is in use its value decreases due to the normal wear and tear, efflux
    of time and obsolescence. This reduction in the value of a fixed asset is known as
    depreciation.

    Question 17.
    Following are the causes of Depreciation except
    (a) Wear and tear due to use or passage of time.
    (b) normal factors
    (c) Expiration of legal rights.
    (d) Obsolescence.

    Answer

    Answer: (b) normal factors


    Explanation:
    The correct option is (b).

    Wear and tear due to use or passage of time means deterioration, and the consequent
    diminution in an assets value, arising from its use in business operations for earning revenue.
    Wear and tear is the physical deterioration. an asset deteriorates simply with the passage of
    time, even if they are not being put to any use.

    Expiration of legal rights certain categories of assets lose their value after the agreement
    governing their use in business comes to an end after the expiry of pre-determined period.
    Obsolescence is another factor leading to depreciation of fixed assets. Obsolescence means
    the fact of being “out-of-date”. Obsolescence implies to an existing asset becoming out-of-
    date on account of the availability of better type of asset.

    So, only normal factors are not a cause of depreciation

    Question 18.
    Following are the causes of Depreciation except
    (a) Natural resources
    (b) Fixed asset
    (c) Liabilities
    (d) Intangible assets

    Answer

    Answer: (a) Natural resources


    Explanation:
    Depletion is an accrual accounting technique used to allocate the cost of extracting natural
    resources such as timber, minerals, and oil from the earth. Like depreciation and
    amortization, depletion is a non-cash expense that lowers the cost value of an asset
    incrementally through scheduled charges to income.

    Question 19.
    An alternative term used for accumulated depreciation expenses?
    (a) Provision for depreciation
    (b) Cumulative depreciation
    (c) Targeted depreciation
    (d) Depletion

    Answer

    Answer: (a) Provision for depreciation


    Explanation:
    Provision for depreciation is an alternative term used for accumulated depreciation expenses.
    Depreciation expense is recognized on the income statement as a non-cash expense that
    reduces the company’s net income.
    Question 20.
    Depreciation charged under diminishing method
    (a) Increase every year
    (b) Decrease every year
    (c) Increase in one year and decrease another year
    (d) Same every year

    Answer

    Answer: (b) Decrease every year


    Explanation:
    Depreciation charged by diminishing value method will decrease every year as the asset will
    decrease in its value every year due to obslence and wear and tear etc. So correct answer is b

    Question 21.
    Which of the following is not a type of reserve
    (a) Provision for bad debt
    (b) General reserve
    (c) Workmen compensation fund
    (d) Retained earnings

    Answer

    Answer: (a) Provision for bad debt


    Explanation:
    Provision for bad debts is a liability for the business and is not any reserve.

    Question 22.
    What is depreciation?
    (a) Cost of using a fixed asset
    (b) The value of asset
    (c) Portion of a fixed assets cost consumed during the current accounting
    (d) Cost of fixed asset’s repair

    Answer

    Answer: (a) Cost of using a fixed asset


    Explanation:
    Depreciation is the cost of using a fixed asset .It is the decrease in the value of a fixed asset
    due to wear and tear in the asset due to their constant use.Example- Decrease in the value of
    machine as they become old.

    Question 23.
    Depreciation helps in determining
    (a) Accurate level of profit
    (b) Increases the value of asset
    (c) Revenue generation
    (d) Increase the burden of tax

    Answer

    Answer: (a) Accurate level of profit


    Explanation:
    The purpose of depreciation is to achieve the matching principle of accounting, that is, a
    company is attempting to match the historical cost of a productive asset (that has a useful life
    of more than a year) to the revenues earned from using the asset.

    Question 24.
    What is the rate of charging depreciation under diminishing method?
    (a) 12% p.a.
    (b) 15% p.a.
    (c) 10% p.a.
    (d) Not fixed

    Answer

    Answer: (d) Not fixed


    Explanation:
    Under this method, the amount of depreciation is calculated as a fixed percentage of the
    reducing or diminishing value of the asset standing in the books at the beginning of the year,
    so as to bring down the book value of the asset to its residual value. The amount of
    depreciation goes on decreasing every year.
    Question 25.
    Under which depreciation method the amount of depreciation expenses remains same
    throughout the useful life of a fixed asset
    (a) Straight line method
    (b) Reducing balance method
    (c) Number of units produced method
    (d) Machine hours method

    Answer

    Answer: (a) Straight line method


    Explanation:
    Under straight line method of depreciation the amount of depreciation expenses remains same
    in the entire useful life of fixed asset because, under straight line method the depreciation is
    charged on the original cost of the asset and not on diminishing value of the asset.

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