DEPRECIATION

1. Characteristic of Depreciation is:

(A) Decline in the value of assets (B) Depreciation is of permanent nature (C)
Depreciation is a non-cash expense (D) All of the above

2. Depreciation arises because of:

(A) Obsolescence

(B) Constant use of assets

(C) Expiry of time

(D) All of the above

3. Depreciation for business is:

(A) Loss

(C) Gain

(B) Income

(D) Liability

4. Factors taken into consideration for providing depreciation are:

(A) Total cost of the asset

(B) Estimated useful life of the asset

(C) Estimated Scrap value of the asset

(D) All of the above

5. Depreciation in the value of asset is:

(A) Permanent decrease

(B) Temporary decrease

(C) Seasonal decrease

(D) None of these

6. Depreciation is provided on:

(A) Current Assets

(C) Fixed Assets

(B) Fictitious Assets

(D) Intangible Assets

7. Depreciation under fixed instalment method is calculated:

(A) On the purchase price of the asset

(B) On the closing balance of the asset

(C) On each year's opening balance of the asset

(D) On the market price of the asset

8. Depreciation under diminishing balance method is calculated:

(A) On the purchase price of the asset

(B) On the closing balance of the asset

(C) On each year's opening balance of the asset

(D) On the market price of the asset

9. Depreciation arises due to:

(A) Fluctuations

(B) Fall in the value of money

(C) Temporary fall in the market value of asset

(D) Physical wear and tear

10. Main object of charging depreciation is:

(A) Ascertaining true profit or loss

(B) Ascertaining true financial position

(C) Ascertaining true cost of production

(D) All of the above

11. Depreciation is the process of:

(A) Valuation of asset

(B) Allocation of the cost of asset

(C) Valuation and allocation of the cost of asset

(D) None of the above

12. Merit of reducing instalment method is :

(A) Easy calculation

(B) Equal burden on profit and loss account each year

(C) Approved by Income Tax Authorities

(D) All of the above

13. A machine is purchased for 80,000 and its installation charges are 10,000. If its
scrap value is ₹6,000 and effective life is 10 years, its yearly depreciation as

Per fixed instalment method will be:

(A)₹ 8,600

(B) ₹ 9,600

(C)₹ 8,400

(D) ₹ 9,000
14. Purchase price of a machine is 2,00,000 and its installation charges are ₹
30,000. Its scrap value is ₹5,000. If it is depreciated @ 10% p.a. on diminishing
balance method, the depreciation in the first year will be:

(A) 23,000

(C) 23,500

(B) 22,500

(D)16,500

15. On purchase of an asset, account debited is :

(A) Purchases A/c

(C) Depreciation A/c

(B) Assets A/c

(D) Goods A/c

16. On purchase of an asset, amount spent on its carriage is debited to:

(A) Purchases A/c

(C) Asset A/c

(B) Carriage A/c

(D) Installation Expenses A/c

17. On sale of an asset, account credited is :

(A) Asset A/c

(B) Sale A/c

(C) Goods A/c

(D) Profit & Loss A/c

18. Depreciation charged at the end of the year will be debited to:

(A) Asset A/c

(C) Goods A/c

(B) Purchases A/c

(D) Depreciation A/c

19. Depreciation charged at the end of the year will be credited to:

(A) Asset A/c

(C) Profit and Loss A/c

(B) Depreciation A/c

(D) Goods A/c

20. Loss on sale of asset is debited to:

(A) Depreciation A/c

(B) Asset A/c

(C) Profit and Loss A/c

(D) Sales A/c

21. On 1st October 2018, a machine is purchased for ₹3,60,000 and ₹ 40,000 are
spent on its installation. Depreciation is charged @ 10% p.a. on original cost
method. Books are closed on 31st March each year. On 31st March, 2020
depreciation charged will be:

(A) ₹ 20,000
(C) ₹ 38,000

(B) ₹ 40,000

(D) ₹ 36,000

22. On 1st July 2017, a machine is purchased for ₹ 1,75,000 and ₹ 25,000 are
spent on its installation. Depreciation is charged @ 10% p.a. on diminishing
balance method. Books are closed on 31st March each year. On 31st March, 2020
depreciation charged will be:

(A) ₹ 18,500 (C) ₹ 16,200

(B) ₹18,000 (D) ₹16,650

 3. On 1st July 2018 a machine is purchased for ₹ 6,00,000. Depreciation is

2
charged @10% p.a. on original cost method on 31st March each year.
Depreciation on 31st March 2020 will be: charged

(A) ₹ 60,000

(C) ₹ 55,500

(B)₹ 45,000

(D) ₹ 54,000

24. On 1st October 2018, a machine is purchased for ₹ 10,00,000. Depreciation is

charged @ 15% p.a. on diminishing balance method on 31st March each year. The
amount of depreciation on 31st March 2020 will be:

(A) ₹ 1,27,500 (C) ₹ 69,375

(B) ₹ 1,44,375 (D) ₹ 1,38,750

25. On 1st April 2018 a machinery is purchased for ₹2,00,000. Depreciation is

charged @ 10% p.a. on original cost method and books are closed on 31st
December every year. On 1st July 2020 the machinery is sold for ₹1,20,000. Loss
on sale will be:
(A) ₹ 30,000

(C) ₹ 40,000

(B) ₹ 35,000

(D) ₹ 25,000

26. On 1st April 2018 a machinery is purchased for ₹4,00,000. Depreciation is

charged @ 10% p.a. on diminishing balance method and books are closed on 31st
December every year. On 1st July 2020, the machinery is sold for ₹ 1,80,000. Loss
on sale will be:

(A) ₹ 1,53,000

(C)₹ 1,36,350

(B) ₹ 1,19,700

(D) ₹ 1,27,800

27. A firm purchased on 1st April 2018 a second-hand machinery for ₹ 50,000 and
spent ₹ 10,000 on its installation. On 1st July in the same year additional
machinery was purchased for ₹ 20,000. Depreciation is provided each year on
31st December @ 5% p.a. on written down value of the asset. The amount of
depreciation in the first year will be:

(A) ₹ 4,000

(C) ₹ 3,500

(B) ₹ 3,250

(D) ₹ 2,750

28. On 1st July 2018, a firm purchased a machinery for ₹4,00,000. On 1st October
in the same year additional machinery was purchased for ₹1,00,000 Depreciation
is provided each year on 31st December @ 10% p.a. on writter down value of the
asset. The amount of depreciation in the second year will be (A)₹ 45,000
(C) ₹ 47,000

(B) ₹ 47,750

(D) ₹ 45,750

29. When 'Provision for Depreciation A/c' is created, the amount of depreciation
is:

(A) Debited to Provision for Depreciation A/c

(B) Credited to Provision for Depreciation A/c

(C) Debited to Asset A/c

(D) Credited to Asset A/c

30. What is the amount of difference between the closing balances of two
machines after two years is both machines were purchased on the same date with
the same amount i.e., for ₹ 1,00,000? Machine I is depreciated by 20% p.a. on
Straight Line Method and Machine II is depreciated by 20% p.a. on Diminishing
Balance Method :

(A) Value of Machine II is more by ₹2,000

(B) Value of Machine I is more by ₹4,000

(C) Value of Machine II is more by ₹4,000

(D) Value of Machine II is less by ₹2,000

31. Ambuja Cement Ltd. purchased a machine on 1-1-2019 for ₹ 1,20,000.

Installation expenses were ₹ 10,000. Its residual value after 10 year is ₹5,000. On
1-03-2019 expenses on its repairs were incurred to the extent of ₹2,000.
Depreciation is provided under straight line method. Books are closed on 31st
March every year. The amount of depreciation for the current year will be:

(A) ₹ 3,125

(B)₹ 3175
(C) ₹ 12,500

(D)₹ 12,700

32. The balance of machine on 31st March 2019 is ₹ 97,200. The machine was

purchased on 1st April 2017. Depreciation is charged @10% p.a. by diminishing

balance method. The cost price of the machine as on 1st April 2017 would be:

(A) ₹1,00,000

(B) ₹ 1,20,000

(C) ₹ 1,08,000

(D) ₹ 1,32,000

33. Original cost of an asset is ₹1,26,000; Salvage value is ₹6,000; Useful Life is 6
Years. The rate of depreciation under Straight Line Method will be:

(A) 15.87% (B) 16.67%

(C) 15.80% (D) 16.56%

34. What will be the percentage of depreciation under SLM in the following case:

Original Cost of Machine ₹ 1,50,000

Salvage value after 9 years ₹ 15,000

Repair charges in 2nd year ₹ 10,000

(A) 11.11%

(B) 10%

(C) 10.34%

(D) 9.37%
35. Which one of the following is not a feature of written down value method of
depreciation?

(A) The book value of the asset becomes zero at any one point of

(B) The depreciation is calculated on the book value of assets and not on the

Cost

( C) the amount of depreciation charged on a specific asset reduces every year

(D) there is no need to estimate the residual value and estimated life at the time
of deciding the amount of depreciation

ANSWER KEY: 1. D 2. D 3. A 4. D 5. A 6. C 7. A 8. C 9. D 10.

D 11. B 12. D 13. C 14. A 15. B 16. C 17. A 18.D 19. A
20. C 21. B 22. D 23. A 24. D 25. B 26. C 27.D 28. B 29. B 30.
C 31. A 32. B 33. A 34. B 35. A

NUMERICAL QUESTIONS DEPRECIATION

1. A Company purchased on 1st April, 2016 a machinery for ₹ 80000. On 1st

October, 2017 it purchased another machine for ₹ 50000 and on 1st
October, 2018 it sold off the first machine purchased in 2016 for ₹ 23000.
Depreciation was provided on the machinery at the rate of 20% p.a. on the
original cost annually. Give machinery a/c for 4 years commencing from 1st
April, 2016. Accounts are closed on 31st march every year.
(loss on sale of machinery ₹ 17000; balance of machinery on 1-4-2020, ₹
25000)
2. Bhushan and company purchased a machinery on 1st April, 2015 for ₹
54000 and spent ₹ 6000 on its installation. On 31st December, 2016 it
purchased another machine for ₹ 30,000.
On 30th june 2017, the first machine purchased on 1st April, 2015 is sold for
₹ 36000 and on the same date it purchased a new machinery for ₹ 80000.
On December 1, 2018, the second machine (purchased on dec 1 2016) was
also sold off for ₹ 26000.
 Depreciation was provided on machinery @ 10% p.a. on original cost
method annually on 31st march. Give the machinery a/c for four years.
(loss on sale of 1st machine ₹ 10,500; gain on sale of 2nd machine ₹ 2000;
balance of machine a/c on 31st march, 2019 ₹ 66000)
3. Ashoka ltd bought a machine on 1st April, 2010 for ₹ 240000 and spent ₹
4000 on its carriage and ₹ 6000 towards installation cost. On 1st July, 2011 it
purchased a second hand machinery for ₹75000 and spent ₹ 25000 on its
overhauling. On 1st January, 2013 it decided to sell the machinery bought on
1st April, 2010 at a loss of ₹ 20,000. It bought another machine on the same
date for ₹ 40000. Company decided to charge depreciation @15% p.a. on
WDV method. Prepare machinery account for 3 years. Books are closed
each year on 31st March.
(sale price of machine ₹ 140305; balance of machine a/c on 31st March,
2013 ₹ 113938)
4. A Company, which closes its books on 31st March every year, purchased
1st July, 2017, machinery costing ₹30,000. It purchased further machinery
on 1st January, 2018, costing ₹ 20,000 and on 1st October, 2018, costing ₹
10,000. On 1st April, 2019, one-third of the machinery installed on 1st July,
2017, became obsolete and was sold for ₹3,000.

Show how the machinery account would appear in the books of the Company,
it being given that machinery was depreciated by Diminishing Balance Method
at 10% per annum. What would be the balance of Machinery Account on 1st
April, 2020?

[Ans. Loss on sale of Machinery ₹ 5,325; Balance on 1st April, 2020, ₹ 39,330.
Dep. for 2017-18 ₹ 2,750; for 2018-19 ₹ 5,225 and for 2019-20 ₹ 4,370.]