# 1.What is depreciation?

#### SOLUTION

Depreciation means a shrinkage in the value of an asset due to factors like wear and tear, the passage of time or obsolescence, etc

# 2.Why depreciation is charged?

#### SOLUTION

Depreciation is charged to find out the true amount of profit or loss in a particular accounting period and to arrive at the true value of the asset.

# 3.What is a ‘Scrap Value’ of an asset?

#### SOLUTION

The net amount which is expected to be realised on the final disposal of a fixed asset is called ‘Scrap Value’ or ‘Residual Value’.

# 4.Why depreciation is charged even in the year of loss?

#### SOLUTION

Unless depreciation is charged, the true amount of profit and loss cannot be ascertained properly and we cannot make provision for the replacement of assets therefore depreciation is charged even in the year of loss.

# 6.Where is the profit or loss on sale of asset is transferred?

#### SOLUTION

Profit or loss on sale of asset is to be transferred to ‘Profit and Loss A/c.

# 7.To which account balance on Depreciation A/c is transferred?

#### SOLUTION

Balance of Depreciation A/c is to be transferred to ‘Profit and Loss A/c’.

# 8.What is the formula to calculate depreciation by Straight Line Method?

#### SOLUTION

Formula to calculate depreciation by straight line method is as follows:

Depreciation is calculated by the following formula

Depreciation (p.a.) = Original cost -Scrap Value / Estimated life of the asset ( in years)

# 9.What is Fixed Instalment Method?

#### SOLUTION

The method in which depreciation is charged at a specific rate on the original cost of the asset every year, so as to reduce the asset account to nil or to its scrap value at the end of its estimated life is known as Fixed Instalment Method.

# 10.Which account is debited when expenses are paid on installation of Machinery?

#### SOLUTION

Machinery account is to be debited when expenses are paid on installation of machinery.

# 1.A continuous, gradual and permanent reduction in the value of a fixed asset.

#### SOLUTION

A continuous, gradual and permanent reduction in the value of a fixed asset. – Depreciation

# 4.The period for which the asset remains in working condition.

#### SOLUTION

The period for which the asset remains in working condition. – Life period of asset

# 1.Decrease in the value of fixed assets is known as ______

• Depreciation
• Appreciation
• Combination
• None of these

# 2.Depreciation is charged only on ______ assets.

• Fixed
• Current
• Non-performing
• Fictitious

# 3.The amount spent on installation of new machinery is a ______ expenditure.

• Revenue
• Capital
• Deferred Revenue
• Income

# 4.The amount that a fixed asset is expected to realise on its disposal is known as ______

• Book value
• Scrap value
• Market value
• Original value

# 5.The amount of depreciation reduces year after year under ______

• Fixed Instalment Method
• Written Down Value Method
• Depreciation Fund Method
• Revaluation Method

# 6.The amount of depreciation remains constant every year under ______

• Straight Line Method
• Diminishing Balance Method
• Revaluation Method
• Insurance Policy Method

# 7.The balance of depreciation account is transferred to ______

• Manufacturing A/c
• Profit & Loss A/c
• Balance sheet

• True
• False

• True
• False

• True
• False

• True
• False

• True
• False

• True
• False

• True
• False

• True
• False

• Agree
• Disagree

• Agree
• Disagree

• Agree
• Disagree

• Agree
• Disagree

# 5.By charging depreciation on fixed assets ascertainment of true and fair financial position is possible.

• Agree
• Disagree

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