Now a days, most of the Competitive Exams, Entrance Exams are conducted on MCQ. Click HERE to understand the Forms, Structure, Rules of MCQ, techniques of understanding, analysing and selection correct answer of MCQ,
Play the Video explaining some interesting aspects of selection of correct answer of MCQ.
For complete resources on Final Accounts Reports, visit https://dvidya.com/final-accounts-mcq/
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 Assets | 10,000 | 10,000 |
| Less: Depreciation @10% p.a. for 1st year. | ||
| W.D.V. of the Assets | 9,000 | 9,000 |
| 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. |
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 price | 30,000 |
| Loss on sale of machinery | 13,200 |
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 Cost | 25,000 |
| Less: Depreciation for 1st year @ 10% p.a. | 2,500 |
| Balance amount of the machine | 22,500 |
| Less: Depreciation for 2nd year @ 10% p.a. | 2,250 |
| Balance amount of the machine | 20,250 |
| 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 Cost | 2,50,000 |
| Less: Depreciation for 1st year @ 10% p.a. | 25,000 |
| Balance amount of the machine | 2,25,000 |
| Less: Depreciation for 2nd year @ 10% p.a. | 22,500 |
| Balance amount of the machine | 2,02,500 |
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 Cost | 50,000 | |
| Add: Carriage | 3,500 | |
| Installation | 2,500 | 6,000 |
| Cost of the machine | 56,000 | |
| Less: Scrap value | 6,000 | |
| Depreciable amount | 50,000 | |
| Depreciation on SLM @ 1/10 | 5,000 |
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.
| Year | Calculation | Depreciation for Machine 1 | Depreciation for Machine 2 |
| 2008 | Rs.6,000 x 20/100 x 1 year | 1,200 | |
| 2008 | Rs.5,000 x 20/100 x 6 months | 500 | |
| 2009 | Rs.(6,000 – 1,200) x 20/100 x 4 months | 320 | |
| 2009 | Rs.(5,000 – 500) x 20/100 x 4 months | 300 |
Calculation for profit and loss on sale of machinery:
| Particulars | M 1 | M 2 |
| Cost of machine | 6,000 | 5,000 |
| Less: Depreciation for 2008 and 2009 | 1,520 | 800 |
| W.D.V. on 31st April, 2009 | 4,480 | 4,200 |
| Less: Sale value | 5,000 | 4,200 |
| 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 furniture | Rs.9, 000 |
| Furniture purchased during the year | Rs.5, 000 |
| Sale of furniture | Rs.2,000 |
| Loss on sale | Rs.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
| Particulars | Rs. | Particulars | Rs. |
| To balance b/d | 9,000 | By bank (Sale) | 2,000 |
| To Bank A/c (purchase) | 5,000 | By P/L A/c (loss) | 1,000 |
| By Depreciation [bal fig.] | 3,000 | ||
| By Balance c/d | 8,000 | ||
| 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.
