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Depreciation Multiple-Choice Questions (MCQs)
The financial worth of a resource diminishes over the long run because of utilization, mileage or oldness. This lessening is estimated as depreciation.
Depreciation MCQs: This section contains multiple-choice questions and answers on Depreciation. It will help the students to prepare well for their exams.
List of Depreciation MCQs
1. Define Depreciation?
- An increase in the value of an asset over time.
- Resource diminishes over the long run because of utilization.
- Assets that can quickly be turned into cash.
- Possession of assets over liabilities.
Answer: B) Resource diminishes over the long run because of utilization.
Explanation:
Depreciation, for example, an abatement in a resource's worth, might be brought about by various elements also, negative economic situations, and so forth Apparatus, hardware, money are a few instances of resources that are probably going to devalue throughout a particular timeframe. The inverse of devaluation is an appreciation which is an expansion in the worth of a resource throughout some period.
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2. What is the principal objective of Depreciation?
- Show last year's profit.
- Show records to Income Tax Department.
- To get a tax rebate.
- To calculate net profit.
Answer: D) To calculate net profit
Explanation:
The primary target of giving depreciation is to ascertain the genuine benefit and give assets to the substitution of fixed resources.
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3. What causes Depreciation?
- Loss of goods
- Purchase of Goods
- Increased Liability
- Wear & Tear
Answer: D) Wear & Tear
Explanation:
Any resource will bit by bit separate over a specific utilization period, as parts wear out and should be supplanted. At last, the resource can don't be fixed and should be discarded. This reason is generally normal for creation gear, which regularly has a maker's suggested life range that depends on a specific number of units delivered. Different resources, like structures, can be fixed and updated for significant periods.
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4. What is the reason behind making a provision for depreciation in accounts?
- To show the current value of assets
- To show current liabilities
- To charge the cost of assets against profits
- To purchase new assets
Answer: C) To charge the cost of assets against profits
Explanation:
A depreciation arrangement can make an organization's accounting report all the more precisely mirror the current worth of the ventures it has made in fixed resources over the long haul.
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5. The Depreciation remains constant according to which method?
- Sum of years digit
- Units of production
- Declining Balance
- Straight Line Method
Answer: D) Straight Line Method
Explanation:
It is the least difficult method for working out the deficiency of worth of a resource after some time. The straight-line is determined by splitting the distinction between a resource's expense and its normal rescue esteem by the number of years it is relied upon to be utilized.
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6. What is Depreciable Value?
- The combined cost of purchase and installation of an asset can be depreciated minus its salvage value.
- The worth of a physical asset's components when the asset itself is deemed no longer usable.
- Represents the value of a company according to the stock market.
- The estimated resale value of an asset at the end of its useful life.
Answer: A) The combined cost of purchase and installation of an asset can be depreciated minus its salvage value
Explanation:
The depreciable worth of the resource is the joined expense of procurement and establishment of a resource that can be devalued shortly its rescue esteem.
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7. What is Scrap Value?
- The combined cost of purchase and installation of an asset can be depreciated minus its salvage value
- The worth of a physical asset's components when the asset itself is deemed no longer usable
- Represents the value of a company according to the stock market
- The estimated resale value of an asset at the end of its useful life
Answer: B) The worth of a physical asset's components when the asset itself is deemed no longer usable
Explanation:
Scrap esteem is the value of an actual resource's singular parts when the actual resource is considered at this point not usable. The singular parts, known as scrap, merit something on the off chance that they can be put to different employments. Here and there scrap materials can be utilized with no guarantees and on different occasions, they should be handled before they can be reused.
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8. Define Market Value?
- The combined cost of purchase and installation of an asset can be depreciated minus its salvage value
- The worth of a physical asset's components when the asset itself is deemed no longer usable
- Represents the value of a company according to the stock market
- The estimated resale value of an asset at the end of its useful life
Answer: C) Represents the value of a company according to the stock market
Explanation:
The market esteem addresses the worth of an organization as indicated by the securities exchange. It is the value a resource would get in the commercial centre. With regards to organizations, market esteem is equivalent to showcase capitalization. It is a dollar sum processed dependent on the current market cost of the organization's portions.
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9. What is Salvage Value?
- The combined cost of purchase and installation of an asset can be depreciated minus its salvage value.
- The worth of a physical asset's components when the asset itself is deemed no longer usable.
- Represents the value of a company according to the stock market.
- The estimated resale value of an asset at the end of its useful life.
Answer: D) The estimated resale value of an asset at the end of its useful life.
Explanation:
Salvage Value is the assessed resale worth of a resource toward the finish of its helpful life. It is deducted from the expense of a proper resource for deciding how much the resource cost will be devalued. Accordingly, rescue esteem is utilized as a part of the deterioration computation.
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10. What is Fixed Instalment Method?
- The amount of depreciation each year is fixed and equal.
- Way to work out the loss of value of an asset over time.
- System of recording larger depreciation expenses during the earlier years.
- An accelerated method for calculating an asset's depreciation.
Answer: A) The amount of depreciation each year is fixed and equal.
Explanation:
This is the most seasoned and most broadly utilized technique for devaluation. A proper measure of devaluation is charged each year during the lifetime of the resource. Toward the finish of the resource's helpful life (e.g., the finish of a machine's life), the worth of the resource will be zero.
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11. What is the Straight-Line Method?
- The amount of depreciation each year is fixed and equal.
- Way to work out the loss of value of an asset over time.
- System of recording larger depreciation expenses during the earlier years.
- An accelerated method for calculating an asset's depreciation.
Answer: B) Way to work out the loss of value of an asset over time.
Explanation:
The straight-line method is a strategy for computing devaluation and amortization, the most common way of discounting a resource throughout a more drawn-out timeframe than when it was bought.
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12. What is the Declining Balance Method?
- The amount of depreciation each year is fixed and equal.
- Way to work out the loss of value of an asset over time.
- System of recording larger depreciation expenses during the earlier years.
- An accelerated method for calculating an asset's depreciation.
Answer: C) System of recording larger depreciation expenses during the earlier years.
Explanation:
In bookkeeping, the declining balance technique is a sped-up deterioration procedure for recording bigger devaluation costs during the prior long stretches of a resource's helpful life while recording more modest devaluation during its later years.
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13. What is Sum of Years Digit?
- The amount of depreciation each year is fixed and equal.
- Way to work out the loss of value of an asset over time.
- System of recording larger depreciation expenses during the earlier years.
- An accelerated method for calculating an asset's depreciation.
Answer: D) An accelerated method for calculating an asset's depreciation.
Explanation:
Sum of the years' digits (SYD) is a sped-up technique for ascertaining a resource's devaluation. This technique takes the resource's normal life and includes the digits for every year; so, on the off chance that the resource was supposed to keep going for a very long time, the number of the years' digits would be gotten by adding: 5 + 4 + 3 + 2 + 1 to get an aggregate of 15. Every digit is then isolated by this aggregate to decide the rate by which the resource ought to be devalued every year, beginning with the largest number in year 1.
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14. What is the Unit of Production Method?
- The amount of depreciation each year is fixed and equal.
- Way to work out the loss of value of an asset over time.
- System of recording larger depreciation expenses during the earlier years.
- Method of calculating the depreciation of the value of an asset over time.
Answer: D) Method of calculating the depreciation of the value of an asset over time.
Explanation:
The unit of production technique is a strategy for computing the deterioration of the worth of a resource after some time. It becomes helpful when a resource's worth is all the more firmly connected with the number of units it delivers rather than the number of years it is being used. This technique regularly brings about more prominent allowances being taken for deterioration whenever the resource is vigorously utilized, which would then be able to counterbalance periods when the gear encounters less use.
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15. Depreciation under Diminishing Balance Method is calculated on?
- Scrap Value
- Book Value
- Cash Account
- Repair
Answer: B) Book Value
Explanation:
As indicated by the Diminishing Balance Method, devaluation is charged at a proper rate on the book worth of the resource. This strategy depends on the understanding that in the prior years the expense of fixes to the resources is low and henceforth more measures of deterioration ought to be charged.
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16. Depreciation on machinery will be debited in which account?
- Cash Account
- Balance Sheet
- Depreciation Account
- Machinery Account
Answer: C) Depreciation Account
Explanation:
The Depreciation charged on machinery will be debited in the Depreciation Account.
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17. What is Amortization?
- Accounting techniques are used to periodically lower the book value of a loan.
- Notable reduction in the utility of an inventory item or fixed asset.
- Accrual accounting technique used to allocate the cost of extracting natural resources
- The loss in the physical efficiency of an asset as it ages.
Answer: A) Accounting techniques are used to periodically lower the book value of a loan.
Explanation:
Amortization is a bookkeeping method used to occasionally bring down the book worth of credit or an immaterial resource throughout a set timeframe. Concerning an advance, amortization centres around fanning out advance instalments over the long haul. When applied to a resource, amortization is like deterioration.
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18. What is obsolescence?
- Accounting techniques are used to periodically lower the book value of a loan.
- Notable reduction in the utility of an inventory item or fixed asset.
- Accrual accounting technique used to allocate the cost of extracting natural resources
- The loss in the physical efficiency of an asset as it ages.
Answer: B) Notable reduction in the utility of an inventory item or fixed asset.
Explanation:
Obsolescence is an outstanding decrease in the utility of a stock thing or fixed resource. The assurance of oldness ordinarily results in a record of the stock thing or resource to mirror its decreased worth.
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19. What is Depletion?
- Accounting techniques are used to periodically lower the book value of a loan.
- Notable reduction in the utility of an inventory item or fixed asset.
- Accrual accounting technique used to allocate the cost of extracting natural resources.
- The loss in the physical efficiency of an asset as it ages.
Answer: C) Accrual accounting technique used to allocate the cost of extracting natural resources.
Explanation:
Depletion for bookkeeping and monetary announcing objects is intended to aid in precisely recognizing the worth of the resources on the accounting report and recording costs in the fitting period on the pay articulation.
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20. What is physical deterioration?
- Accounting techniques are used to periodically lower the book value of a loan.
- Notable reduction in the utility of an inventory item or fixed asset.
- Accrual accounting technique used to allocate the cost of extracting natural resources.
- The loss in the physical efficiency of an asset as it ages.
Answer: D) The loss in the physical efficiency of an asset as it ages.
Explanation:
Physical deterioration is the misfortune in the actual effectiveness of a resource as it ages. Effectiveness in this setting alludes to the resource's capacity to create several capital administrations for a given measure of information sources. It is equivalent to "mileage" or " rot".
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