Depreciation Accounting MCQ

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1. Depreciation is charged on

(a)    Fixed assets.

(b)    Current assets.

(c)    Both fixed and current assets.

(d)    None of the above.

Depreciation is charged on Fixed assets. So, option (a) is correct

2. Which of the following asset generally assumed not to depreciate?

(a)    Machinery

(b)    Building

(c)    Land.

(d)    All of the above.

Land is considered to have indefinite life. So, it is not depreciated. So, option (c) is correct

3. Under the annuity method of depreciation, the charge is

(a)    Increasing every year.

(b)    Decreasing every year.

(c)    Fixed for all years.

(d)    Fluctuating from year to year.

Depreciation charge is same for each year but the interest charge decreases each year (as interest is computed on reducing balance). So, the net charge for depreciation gradually decreases. So, option (b) is correct.

4. Under the diminishing balance method, the amount of depreciation is calculated on

(a)    The written-down value of the asset.

(b)    The market value of the asset.

(c)    The original cost of the asset.

(d)    The expected realizable value of the asset.

 Under Diminishing or Reducing Balance Method the depreciation amount is calculated on written down value. So, the amount reduces every year. So, option (a) is correct.

5. Depreciation charges are

(a)    Cash expenses.

(b)    Financial expenses.

(c)    Non-cash expenses.

(d)    Non-operating expenses.

Depreciation charge is diminution in value of fixed assets due to use, which is charged to P & L a/c every year, There is no cash outflow and so it is a non-cash expenditure. So, option (c) is correct.

6. Book value means

(a)    Expected sale price.

(b)    Current market price if purchased now.

(c)    Value as shown in the books of account.

(d)    Original acquisition price.

Book value means the amount shown in the books of accounts. So, option (c) is correct.

7. Which method of depreciation would you recommend for coal mines?

(a)    Diminishing balance method.

(b)    Fixed installment method.

(c)    Sum of year’s digits.

(d)    Depletion method.

In case of coal mines, the asset is depleted (as coal is taken out and the coal reserve reduces), depletion method of depreciation is normally used for such assets. So, option (c) is correct.

8. The depreciation value after two years of an asset costing Rs.10, 000 depreciated at 10% on fixed installment is Rs. ———— and on reducing balance method is ———–.

(a)    Rs.8, 100 and Rs.8, 000.

(b)    Rs.9, 000 and Rs.8, 000.

(c)    Rs.8, 000 and Rs.8, 100.

(d)    Rs.8, 000 and Rs.9, 000.

Book value of the Assets10,00010,000
Less: Depreciation @10% p.a. for 1st year.1,0001,000
W.D.V. of the Assets9,0009,000
Less: Depreciation @ 10% p.a. for the 2nd year. Rs.10,000 x 10 /100 Rs.9,000 x 10 /100    1,000      900
W.D.V. of the Assets after 2nd year. So, option (c) is correct.8,0008,100

9. A machinery was purchased on 1-1-2006. It was delivered on 1-4-2006. The installation was completed on 1-7-2006. The trial run was completed on 30-9-2006 and was put to use from 1-12-2006. The effective period for calculation of depreciation for the year 2006 is

(a)    10 months

(b)    9 months

(c)    1 month

(d)    3 months

The effective period for calculation of depreciation starts from the date when the machine is ready for use. So, deprecation should be computed from 1.12.06, i.e,  from 1 month for the year 2006. So, option (c) is correct.

10. In case of mineral resources:

(a)    Depreciation is provided as per SLM

(b)    Depreciation is provided as per WDV

(c)    Depreciation not provided instead depletion is charged

(d)    None of the above.

In case of mineral resources, depletion is charged. So, option (c) is correct.

11. The estimated value of depreciable assets after its useful life is called

(a)    Actual value

(b)    Replacement value

(c)    Disposal (Residual) value

(d)    Current value.

Disposal or Residual value is the amount which is expected to be received when the assets is sold after being removed from service i.e. its useful life.  So, option (c) is correct.

12. Depreciation is primarily provided due to:

(a)    Reduce tax burden.

(b)    Replacement of fixed asset in future.

(c)    Comply with legal requirements.

(d)    All of the above.

Depreciation is provided for retaining enough funds for replacement of the asset at the end of its useful life. So, option (b) is correct.

13. Depreciation starts on a machine from the Date:

(a)    It is purchased.

(b)    It is put to use.

(c)    It is installed.

(d)    Any of the above.

Depreciation starts on a machine from the date it is put to use. So, option (b) is correct.

14. In the books of D. Ltd. the machinery account shows a debit balance of Rs.60, 000 as on April 1st, 2003. The machinery was sold on September 30, 2004 for Rs.30, 000. The company charges depreciation @ 20% p.a. (FY April to March) on diminishing balance method. What will be the Profit or Loss on sale of machinery?

(a)    Rs.13, 200 Profit.

(b)    Rs.13, 200 Losses.

(c)    Rs.6, 800 Profit.

(d)        Rs.6, 800 Losses.

Calculation for Profit or Loss on sale of machinery

W.D.V. of the machinery as on 31.3.2004 [60000-(12000+4800)]43,200
Less: Sale price30,000
Loss on sale of machinery13,200

So, option (b) is the right answer of this question

15. An asset was purchased for Rs.25, 000 and was depreciated under Reducing Balance Method at the rate of 10% p.a. What is the value of the asset at the end of three years?

(a)    Rs.25,000

(b)    Rs.20,250

(c)    Rs.18,225

(d)    None of the above.

Calculation for Depreciation:

Original Cost25,000
Less: Depreciation for 1st year @ 10% p.a.2,500
Balance amount of the machine22,500
Less: Depreciation for 2nd year @ 10% p.a.2,250
Balance amount of the machine20,250
Less: Depreciation for 3rd year @ 10% p.a.2,025
Balance amount of the asset at the end of 3rd year.18,225

So, option (c) is correct

16. Original cost of an assets Rs.2, 50,000, scrap value Rs.10, 000. Depreciation for 2nd year @ 10% p.a. under W.D.V. method will be: /4

(a)    Rs.21,600

(b)    Rs.24,000

(c)    Rs.22,500

(d)    None of the above.

Original Cost2,50,000
Less: Depreciation for 1st year @ 10% p.a.25,000
Balance amount of the machine2,25,000
Less: Depreciation for 2nd year @ 10% p.a.22,500
Balance amount of the machine2,02,500

So, the depreciation for 2nd year is Rs.22, 500 and hence option (c) is the right answer of this question.

Note: Salvage value is not deducted while computing depreciable base at WDV method.

So, option (c) is correct.

17. On 1st January, 2008, A Ltd. Purchased a machinery for Rs.50, 000 and spent Rs.3, 500 on its carriage and Rs.2, 500 on its installation. Its useful life is 10 years and scrap value is Rs.6, 000. Depreciation for the year under straight line method will be:

(a)    Rs.4,600

(b)    Rs.5,000

(c)    Rs.5,600

(d)    None of the above

Original Cost50,000
Add: Carriage3,500 
Cost of the machine56,000
Less: Scrap value6,000
Depreciable amount50,000
Depreciation on SLM @ 1/105,000

So, option (b) is correct

18. A Plant of Rs.3, 000 was sold for Rs.4, 200. Depreciation provision to date was Rs.400 and commission paid to selling agent was Rs.350 and labour charges paid for removing the plant was Rs.100 Profit on sale of plant will be:

(a)    Rs.1,200

(b)    Rs.1,000

(c)    Rs.1,150

(d)    None of these

Calculation for sale of plant:

Book value of the plant = 3000 – 400 = 2600

Net reaslisation of plant = 4200 – (350+100) = 3750

So, profit on sale of machinery =  3750 – 2600 = 1150

So, option (c) is correct

19. A purchased a mine for Rs.5, 00,000. Minerals in the mine were expected to be 10, 00,000 tones. In the first year, 1, 00,000 tones of minerals were used. What is the depreciation for the first year?

(a)    Rs.40,000

(b)    Rs.50,000

(c)    Rs.60,000

(d)    None of these

Depreciation rate (r) = Cost of the asset /estimated quantity likely to be available

i.e. Rs.5,00,000 /10,00,000 / ton =  Re.50 / ton

Depreciation = r x production of the year (i.e. minerals extracted)

                            =.50 x 1,00,000 tons = Rs.50, 000.

So, option (b) is correct

20. Original cost = Rs.1, 50,000, Estimated life = 5 years, Expected salvage value

= Rs.3, 000. Rate of depreciation p.a. =?

(a)    19.6%

(b)    20%

(c)    19.8%

(d)    20.8%

Rate of depreciation = (Original cost – Salvage value) / Estimated life.

i.e. Rs. (1, 50,000 – 3,000)  / 5  = 29,400

Hence, % of depreciation = (Rs.29,400 /1,50,000) x 100% = 19.6%. 

So, option (a) is correct.

21. Lease for 5 year Rs.10, 000. Rate of interest 5% Reference to annuity table 0.230975. The depreciation per year is

(a)    Rs.1,000

(b)    Rs.115.48

(c)    Rs.230.97

(d)    Rs.2,309.75

Depreciation of Re.1 in one year under annuity table is 0.230975

So the depreciation of Rs.10, 000 in one year is 0.230975 x Rs.10, 000 = Rs.2,309.75.

Hence, option (d) is correct.

22. Machinery cost Rs.40, 000. Scrap value Rs.10, 000. Life 5 years. Rate of interest 5%. Reference to sinking fund table 0.180975. The depreciation per year will be

(a)    Rs.6,000

(b)    Rs.2,000

(c)    Rs.7,239

(d)    None of these

Depreciation of Re.1 in one year  under sinking fund table is 0.180975

So the depreciation of Rs.40, 000 in one year is 0.180975 x Rs.40, 000 = Rs.7239

Hence, option (c) is correct.

23. On 1st January, 2008 A Ltd. purchased a machinery of Rs.6, 000 and also purchased a second hand machinery as on 1st July, 2008 of Rs.5, 000. Both the machinery were sold on 31st April, 2009 for Rs.5, 000 and Rs.4, 200 respectively. The company charges depreciation @ 20% p.a. on diminishing balance method. What will be the profit or loss on sale of both machinery?

(a)    No profit, no loss for both machinery.

(b)    For 1st machine ‘profit’ and for 2nd machine ‘loss’.

(c)    For 1st machine ‘profit’ and for 2nd machine ‘no profit no loss’.

(d)    Loss for both the machinery.

YearCalculationDepreciation for Machine 1Depreciation for Machine 2
2008Rs.6,000 x 20/100 x 1 year1,200 
2008Rs.5,000 x 20/100 x 6 months 500
2009Rs.(6,000 – 1,200) x 20/100 x 4 months320 
2009Rs.(5,000 – 500) x 20/100 x 4 months 300

Calculation for profit and loss on sale of machinery:

ParticularsM 1M 2
Cost of machine6,0005,000
Less: Depreciation for 2008 and 20091,520800
W.D.V. on 31st April, 20094,4804,200
Less: Sale value5,0004,200
Profit / Loss on sale of machine.(520)NIL

So, For 1st machine ‘profit’ and for 2nd machine ‘no profit no loss’ and hence option (c) is the right answer.

24. On 1.1.2008, value of furnitureRs.9, 000
Furniture purchased during the yearRs.5, 000
Sale of furnitureRs.2,000
Loss on saleRs.1,000
On 31.12.2008 furniture stood.Rs.8,000
Find out the depreciation at the end of the year. 

(a)    Rs.4,000

(b)    Rs.5,000

(c)    Rs.3,000

(d)    Rs.2,000

Furniture A/c

To balance b/d9,000By bank (Sale)2,000
To Bank A/c (purchase)5,000By P/L A/c (loss)1,000
  By Depreciation [bal fig.]3,000
  By Balance c/d8,000
 14,000 14,000

So, the depreciation is Rs.3, 000 and hence, option (c) is correct.

Arithmetically, it may be computed like this

Cost of furniture sold = 2000 (sale value) + 1000 (loss) = 3000

Let depreciation = D

9000 (opening) + 5000 (additions)  – D (depn) – 3000 (cost of sale)  = 8000 (closing)

So, D = 11000 – 8000 = 3000

25. The cost of the asset purchased on 1st April, 2008 was Rs.24, 000. the depreciation was provided at 10% on Straight Line Method. The asset was sold on 31st Jan, 2009 for Rs.18, 000. Which of the following statements is/are true?

(a)    Depreciation provided for the year was Rs.2,400

(b)    Loss on the sale of asset was Rs.4,000

(c)    No depreciation will be provided

(d)    Both (a) and (b).

Depreciation of the machine = Rs.24, 000 x 10% x 10/12 months. = Rs.2,000.

So, the W.D.V. of the asset = Rs.(24,000 – 2,000) = Rs.22,000

Hence the profit or loss of the asset = (sale vale – w.d.v. of the asset)

i.e. Rs. (22,000 – 18,000) = Rs.4, 000 loss

So,  option (b) is correct

26. Machinery was purchased for Rs.50, 000 two years ago. The current book value of the machinery is Rs.36, 125. If the depreciation is charged under written down value method, the rate of depreciation is :

(a)    30%

(b)    25%

(c)    20%

(d)    15%

Rate of Depreciation is 1-( 2√(36,125 / 50,000) = 1-√.7225 = 1=.85= .0.15 = (,15 x100)x 100%) =15%. So, option (d) is correct

27. The written down value or an asset after three years of depreciation on the reducing balance method @ 10% p.a. is Rs.18, 225. Its original value must have been ________.

(a)    Rs.40,000

(b)    Rs.25,000

(c)    Rs.30,000

(d)    None of these

Calculation of original value of the assets  = Rs.18,225 x 100/90 x 100/90 x 100/90  = Rs.25, 000.

So, option (b) is the right answer.

28. What is Depreciation?
A)  Cost of a fixed asset 
B)  Cost of a fixed asset’s repair 
C)  The residual value of a fixed asset 
D)  Portion of a fixed asset’s cost consumed during the current accounting period. 
Depreciation is Portion of a fixed asset’s cost consumed during the current accounting period.  So, option (d) is correct

29. What is the accumulated deprecation?
A)  Sum of depreciation expenses of a fixed asset from date of putting the asset into use till date
B)  Depreciation for 1st year
C)  Cost of depletion of assets 
D)  Future value of fixed asset 

Accumulated Deprecation is sum of depreciation expenses of a fixed asset from date of putting the asset into use till date. So, option (a) is correct

30. Accumulated depreciation Shows 
A)  Debit balance 
B)  Credit balance 
C)  Nil balance 

D)  Residual Value
Accumulated depreciation Shows Credit balance. So, option (B) is correct.

31. A company purchased a new machine for Rs.500,000 and machine’s test run was started to make sure that machine works properly. There was expense of Rs.5000 incurred on test run, however income of test production were Rs.2000. What is the total cost of machine? 
A)  Rs.500,000 
B)  Rs.505,000 
C)  503,000 
D)  495,000
Total Cost of machine is 5,00,000 (purchase cost) + [5000 (test Run expenses) – 2000(test run earnings)\= 5,00,000 + 3,000= 5,03,000. So, option (C) is correct.

32. An increase in the value of asset is referred to as:
A)  Depreciation 
B)  Appreciation 
C)  Market capitalization
D)  Reverse depreciation
An increase in the value of asset is referred to as Appreciation. So, option (B) is correct.

33. The term ______ is generally used for the depreciation of natural resources:
A)  Amortization
B)  Depletion
C)  Appreciation
D)  Disposal Value
The term Depletion is generally used for the depreciation of natural resources. Hence Option (B) is correct.