{"id":44075,"date":"2024-02-19T05:17:51","date_gmt":"2024-02-18T23:47:51","guid":{"rendered":"https:\/\/www.aplustopper.com\/?p=44075"},"modified":"2024-02-19T11:14:37","modified_gmt":"2024-02-19T05:44:37","slug":"plus-one-accountancy-chapter-wise-questions-answers-chapter-6","status":"publish","type":"post","link":"https:\/\/www.aplustopper.com\/plus-one-accountancy-chapter-wise-questions-answers-chapter-6\/","title":{"rendered":"Plus One Accountancy Chapter Wise Questions and Answers Chapter 6 Depreciation, Provisions and Reserves"},"content":{"rendered":"

Kerala Plus One Accountancy Chapter Wise Questions and Answers Chapter 6 Depreciation, Provisions and Reserves<\/h2>\n

Plus One Accountancy Depreciation, Provisions and Reserves One Mark Questions and Answers<\/h3>\n

Question 1.
\nDepreciation arises due to ………
\n(a) Wear and tear
\n(b) Fall in money value
\n(c) Fall in the market value of asset
\n(d) None of these
\nAnswer:
\n(a) Wear and Tear<\/p>\n

Question 2.
\nReason for a reduction in the value of a quarry is
\n(a) Depletion
\n(b) Wear and Tear
\n(c) Passage of time
\n(d) Obsolescence
\nAnswer:
\n(a) Depletion<\/p>\n

Question 3.
\nScrap value can also be called as …………….. value.
\n(a) Realisable
\n(b) Break-up
\n(c) Resale
\nAnswer:
\n(b) Break up<\/p>\n

Question 4.
\nDecrease in the value of intangible asset is termed as …………..
\n(a) Wear and tear
\n(b) Depletion
\n(c) Amortization
\n(d) Accident
\nAnswer:
\n(c) Amortization<\/p>\n

Question 5.
\nUnder diminishing value method, depreciation is calculated on ……………
\n(a) Original cost
\n(b) Written down value
\n(c) Scrap value
\n(d) None of these
\nAnswer:
\n(b) Written down value<\/p>\n

Question 6.
\nCapital profits are used to create ………………
\n(a) General reserve
\n(b) Capital reserve
\n(c) Secret reserve
\n(d) None of these
\nAnswer:
\n(b) Capital reserve<\/p>\n

Question 7.
\nProfit on sale of fixed assets is a ………………….
\nAnswer:
\nCapital profit.<\/p>\n

Question 8.
\nPurpose of Provision is to meet a ………….
\nAnswer:
\nLiability.<\/p>\n

Question 9.
\n……………… is an appropriation from the profit.
\nAnswer:
\nReserve.<\/p>\n

Question 10.
\n……………. are usually created out of business profits which are available for distribution of dividend.
\nAnswer:
\nRevenue Reserves.<\/p>\n

Question 11.
\nUnder the …………….. method, the percentage of depreciation is applied on the original cost of the asset.
\nAnswer:
\nFixed Instalment Method<\/p>\n

Question 12.
\nDepreciation is an expense.
\nAnswer:
\nNon-cash<\/p>\n

Question 13.
\n……………. implies to an existing asset becoming out-of-date on account of the availability of better type of asset.
\nAnswer:
\nObsolescence.<\/p>\n

Question 14.
\nInstallation, freight, and transport expenses are a part of …………
\nAnswer:
\nAcquisition cost.<\/p>\n

Question 15.
\n…………….. reserve is a reserve which does not appear in the balance sheet.
\nAnswer:
\nSecret reserve.<\/p>\n

Question 16.
\nReserve created for maintaining a stable rate of dividend is termed as ………….
\nAnswer:
\nDividend Equalisation Reserve<\/p>\n

Question 17.
\n…………. is created to make for decline in the value of investment due to market fluctuation.
\nAnswer:
\nInvestment Fluctuation Fund.<\/p>\n

Question 18.
\n……………. is a charge against profit.
\nAnswer:
\nProvision.<\/p>\n

Question 19.
\nChoose odd one and give reason.
\n(a) Copyright
\n(b) Goodwill
\n(c) Building
\n(d) Patent
\nAnswer:
\n(c) Building. Others are intangible assets.<\/p>\n

Question 20.
\nWhich of the following is a natural cause of depreciation?
\n(a) Obsolescence
\n(b) Wear and Tear
\n(c) Prohibition of an asset by the govt.
\n(d) None of these
\nAnswer:
\n(b) Wear and Tear<\/p>\n

Plus One Accountancy Depreciation, Provisions and Reserves Two Mark Questions and Answers<\/h3>\n

Question 1.
\nIs depreciation an expense like salary or rent etc? How is it distinguished from any other type of expense?
\nAnswer:
\nIn case of depreciation, there is no payment or outflow occurring.<\/p>\n

Question 2.
\nDefine Depreciation.
\nAnswer:
\nDepreciation is defined as \u201ca fall in the value of fixed assets owing to wear and tear, obsolescence, passage of time or exhaustion.\u201d<\/p>\n

Question 3.
\nList out the causes of depreciation.
\nAnswer:<\/p>\n

    \n
  1. Wear and Tear<\/li>\n
  2. Obsolescence<\/li>\n
  3. Passage of time<\/li>\n
  4. Depletion<\/li>\n
  5. Accident.<\/li>\n<\/ol>\n

    Question 4.
    \nWhat are the factors affecting the amount of depreciation?
    \nAnswer:
    \nThere are three basic factors which are required to charge depreciation, they are:<\/p>\n

      \n
    1. Cost of Assets<\/li>\n
    2. Estimated Net Residual value or Scrap value or salvage value<\/li>\n
    3. Estimated Useful life<\/li>\n<\/ol>\n

      Question 5.
      \nTrue profit is arrived at only if depreciation is taken into account. Explain.
      \nAnswer:
      \nDepreciation is the operating expenses of a physical asset. It should be considered in arriving at the true profit earned during each year.<\/p>\n

      Question 6.
      \nMr. Raju running a soda manufacturing company is of the view that \u2018\u2018no depreciation need be provided on
      \nthe fixed assets because he does not pay any amount as depreciation to anyone.\u201d As a commerce student, how will you respond to his statement? State reasons.
      \nAnswer:
      \nThe need for providing depreciation in accounting records arises from conceptual, legal and practical business considerations. Though depreciation is not paid it has to be identified as important business expenditure. The consequence of not providing depreciation as<\/p>\n

        \n
      1. Timely replacement of fixed assets become impossible.<\/li>\n
      2. Cost of production cannot be exactly calculated.<\/li>\n
      3. Paying dividend out of capital.<\/li>\n<\/ol>\n

        Plus One Accountancy Depreciation, Provisions and Reserves Three Mark Questions and Answers<\/h3>\n

        Question 1.
        \nWhat are the objectives or needs of providing depreciation?
        \nAnswer:
        \nThe main objectives of providing depreciation are:<\/p>\n

          \n
        1. To ascertain the true result of the business.<\/li>\n
        2. To present true Balance sheet.<\/li>\n
        3. To retain funds for replacement.<\/li>\n
        4. To avoid excess payment of income tax<\/li>\n
        5. To fulfill the legal requirements<\/li>\n<\/ol>\n

          Question 2.
          \n\u201cProvision is a must and reserve is an option.\u201d – Elucidate.
          \nAnswer:
          \nA provision is created for meeting some expected contingency and can only be utilized for the purpose for which it is meant. Thus provision is the amounts set aside out of profit\u2019s to provide for:<\/p>\n

            \n
          1. Depreciation, renewals, or decrease in the value of fixed assets and<\/li>\n
          2. Any known liability of which the amount cannot be determined with substatial accuracy.<\/li>\n<\/ol>\n

            A reserve is meant for meeting an unanticipated situation and can also be used in the payment of any future liability or loss. It is an appropriation from profit, which are not earmarked in any way to meet any liability. Thus, provision is a must and reserve is an option.<\/p>\n

            Question 3.
            \nExplain the terms:<\/p>\n

              \n
            1. Depletion<\/li>\n
            2. Scrap value<\/li>\n
            3. Obsolescence<\/li>\n<\/ol>\n

              Answer:
              \n1. Depletion:
              \nAssets such as mines, quarries, etc. are of wasting nature. By extraction of these natural depositions, their value is reduced. This reduction in value of natural deposition due to depletion in quantity is a cause of depreciation.<\/p>\n

              2. Scrap value:
              \nThis is the estimated value of a fixed asset at the end of its useful life. It is the amount which is expected to be received when the asset is sold after being removed from service. It is also known as Salvage value or residual or Break-up value of asset.<\/p>\n

              3. Obsolescence:
              \nAs a result of change in fashion or new inventions, some assets may be discarded before their productive life comes to an end. This is called obsolescence.<\/p>\n

              Question 4.
              \nExplain the concept of secret Reserve.\u201d
              \nAnswer:
              \nSecret reserve is a reserve that does not appear in the balance sheet. It may help to reduce profit and also tax liability. Management may resort to creation of secret reserve by charging higher. depreciation than required. It is termed as \u2018Secret Reserve\u2019, as it is not known to outside stakeholders. Secret reserve can also be created by way of<\/p>\n

                \n
              1. Undervaluation of inventories \/stock<\/li>\n
              2. Charging capital expenditure to P\/L account<\/li>\n
              3. Making excessive provision for doubtful debts.<\/li>\n
              4. Showing contingent liability as actual liabilities.<\/li>\n<\/ol>\n

                Plus One Accountancy Depreciation, Provisions and Reserves Four Mark Questions and Answers<\/h3>\n

                Question 1.
                \nMatch the following.
                \n\"Plus
                \nAnswer:<\/p>\n