11th Book-Keeping and Accountancy
Book-Keeping and Accountancy Class 11- Chapter - 7-Depreciation
Q.1.Answer in one sentence only:
1) What is Depreciation?
Ans. Depreciation means shrinkage in the value of an asset due to factors like wear and tear, passage of time or obsolescene, etc.
2) Why depreciation is charged?
Ans. Depreciation is charged to find out true amount of profit or loss in particular accounting period and to arrive at true value of the asset.
3) What is ‘Scrap Value’ of an asset?
Ans. 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?
Ans. Unless depreciation is charged, true amount of profit and loss cannot be ascertained properly and we cannot make provision for the replacement of asset therefore depreciation is charged even in the year of loss.
5) Which account is credited when depreciation is charged?
Ans. Relevant asset account is credited when depreciation is charged.
6) Where is the profit or loss on sale of asset is transferred?
Ans. Profit or loss on sale of asset is to be transferred to ‘Proiit and Loss A/c.
7) To which account balance of Depreciation No is transferred?
Ans. 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?
Ans. Formula to calculate depreciation by straight line method is as follows:
9) What is Fixed Instalment Method?
Ans. 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?
Ans. Machinery account is to be debited when expenses are paid on installation of machinery.
Q. 2. Give the word/term or phrase for each of the following statement.
Q.3. select the most appropriate answers from the alternatives given below and write the sentence.
1. Decrease in the value of fixed assets is known as ..........
a) Depreciation b)Appreciation c) Combination d) None of these
2. Depreciation is charged only on ..........assets.
a) Fixed b) Current c) Non-performing. d) Fictitious.
3. The amount spent on installation of new machinery is a ...............expenditure.
a) Revenue b) Capital c) Deferred Revenue d) Income.
4. The amount that a fixed asset is expected to realise on its disposal is known as............
a) Book value b) Scrap value c) Market value d) Original value.
5. The amount of depreciation reduces year after year under....................
a) Fixed Instalment Method b) Written Down Value Method c) Depreciation Fund Method. d) Revaluation Method.
6. The amount of depreciation remains constant every year under..................
a) Straight Line Method b) Diminishing Balance Method c) Revaluation Method. d) Insurance Policy Method
7. The balance of depreciation account is transferred to .............................
a) Manufacturing A/c b) Trading A/c c) Profit & Loss A/c d) Balance sheet
Q.4. State whether the following statements are True or False with reasons.
l) Depreciation is charged on fixed assets.
Ans. This statement is True.
To find out actual profit or loss of business and to make provision for the replacement of asset. depreciation is charged on fixed assets.
2) Depredation increases the value of the asset.
Ans. This statement is False.
Depreciation means a continuous, gradual and permanent reduction in the value of fixed assets, so we can say that depreciation decreases the value of the asset.
3) Balance of depreciation account is transferred to Profit & Loss Alc.
Ans. This statement is True.
Depreciation is a non-each expenses for the business, every income or expense account is to be transferred to profit & loss A/c. to ascertain the actual profit or loss of the business. Therefore balance of depreciation account is transferred to Profit and Loss A/c.
4) The Profit or Loss on sale of fixed asset is ascertained only after charging depreciation.
Ans. This statement is True.
Unless depreciation is charged to the revenues, the exact amount of profit or loss of business cannot be ascertained properly. Therefore, the profit or loss on sale of fixed asset is ascertained only after charging depreciation.
5) Wages paid for installation of machinery are debited to wages A/c.
Ans. This statement is False.
Wages paid for installation of machinery is nothing but part of cost of machinery only, Therefore, it is to be debited to Machinery A/c. only.
6) It is not necessary to depreciate an asset if it is not in use. Ans.
This statement is False.
Depreciation is charged as an element of cost. If an asset is not in use, even though its value reduces due to passage of time. Therefore, we can say that it is compulsory to depreciate an asset, if it is not in use.
7) Depreciation is charged on current assets only.
Ans. This statement is False.
Depreciation is charged on fixed asset only because it is necessary to apportioned the cost over a number of years during the useful life of an asset and there is no question of useful life for current asset.
8) Depreciation need not be charged when business is making losses.
Ans. This statement is False.
Depreciation is an element of cost which is to be calculated/charged irrespective of profit or loss of the business. Also, to find actual profit or loss of the business, it is compulsory to calculate depreciation.
Q. 5. Complete the following sentence.
1. Depreciation is charged on ................asset.
2. Wages paid for Installation / fixation of Machinery is debited to .............account.
3. Under ...............system, the amount of depreciation changes every year.
4. Depreciation = Cost of asset Less ...................
--------------------------------------------------
Estimated Working Life of the Asset.
5. Gradual and permanent decrease in the value of asset is known as ...............
6. In Fixed Instalment System the amount of depreciation is ..............every year.
7. The amount spent on installation of Machinery is a ...................expenditure.
8. ............. is the value which an asset realises at the end of its useful life.
9. Depreciation Account is a .................account.
10. Depreciation is derived from a Latin word ...............
1) Depreciation is charged on fixed asset.
2) Wages paid for Installation/fixation of machinery is debited to machinery account.
3) Under reducing balance system, the amount of depreciation changes every year.
5) Gradual and permanent decrease in the value of an asset is known as depreciation.
6) In Fixed Instalment System, the amount of depreciation is constant every year.
7) The amount spent on installation of machinery is a capital expenditure.
8) Scrap value is the value which an asset realises at the end of its useful life.
9) Depreciation Account is nominal account.
10) Depreciation is derived from a Latin word depreciation.
Q.6. Do you agree or disagree with the following statements.
l) Depreciation is non-cash expense.
Ans. Agree.
2) Under written down value method, the depreciation curve slopes parallel to ‘X’ axis.
Ans. Disagree.
3) The rate of depreciation depends upon the life of fixed asset.
4) The terminal value of asset never affects the annual amount of depreciation.
Ans. Disagree.
5) By charging depreciation on fixed assets ascertainment of true and fair financial position is possible.
Ans. Agree.
Q.7. Correct the following statement and rewrite the statement.
1) Residual value of an asset increases the amount of annual depreciation.
Ans. Residual .value of an asset decreases the amount of annual depreciation.
2) Depreciation is calculated on all assets.
Ans. Depreciation is calculated on fixed assets only.
3) Under written down value method depreciation is calculated on original cost of an asset.
Ans. Under fixed instalment method, depreciation is calculated on original cost of an asset.
4) Depreciation provided on asset is debited to asset account.
Ans. Depreciation provided on asset is debited to depreciation account.
5) Profit on sale of asset is credited to asset account.
Ans. Profit on sale of asset is credited to Profit & Loss A/c.
Coming Soon Keep Visiting
Q.8 Calculate the following.
1. A machine costing ` 23,000 is estimated to have a life of 7 years and the scrap value is estimated ` 2,000 at the end of its useful life. Find out the amount of depreciaiton p.a.
2. If the cost of the Computer is ` 40,000 and depreciaiton is to be charged at 8% p.a.
calculate the amount of depreciaiton.
3. Mr. 'X' purchased Furniture on 1st Oct., 2015 at ` 2,80,000 and spent ` 20,000 on its
installation. He provides depreciation at 6% under straight line method on 31st March,
2016. Calculate the amount of depreciation.
4. M/s Sitaram and Co. purchased a Machinery on 1st Jan, 2016 for ` 2,00,000. Compnay provides depreciation @ 10% p.a. on Reducing Balance Merthod on 31st March every year.
Calculate written down value of Machinery as on 31st March, 2017.
5. On 1st July, 2016 M/s Ramai & Co. sold Machinery for ` 7,000, the original cost ` 10,000/- which was pruchased on 1st April, 2015. Find out the profit or loss on sale of Machinery by charging depreciation at 10% p.a. on original cost on 31st March every year.
Practical Problems on Straight Line Method
1. On 1st April 2015 Farid of Nasik purchased a Motor Car for ` 55,000. The scrap value of the Motor Car was estimated at ` 10,000 and its estimated life is 10 years The Registration charges of the Motor Car was ` 5,000.
Show Motor Car Account for first four years, assuming that the books of accounts
are closed on 31st March every year
2. On 1st Jan 2017 ‘Sai Industries Nagpur, purchased a Machine costing ` 1,65,000 and spent ` 15,000 for its installation charges. The estimated life of the Machine is to be 10 years and the scrap value at the end of its life would be ` 30,000. On 1st Oct 2018 the entire Machine was sold for ` 1,50,000. Show Machinery Account, Depreciation Account for the years 2016-17, 2017-18 and 2018-19, assuming that the accounts are closed on 31st March every year. 245
3. Shubhangi Trading Company of Dombivli purchased Machinery for ` 86,000 on 1st Jan 2016 and immediately spent ` 4,000 on its fixation and erection. On1st Oct,2016 additional Machinery costing ` 40,000 was purchased. On 1st Oct 2017 the Machinery purchased on 1st Jan 2016 became obsolete and was sold for `70,000. On 1st July 2017 a new Machine was also purchased for ` 45,000 Depreciation was provided annually on 31st March at the rate of 12% per annum on fixed instalment method.
Prepare Machinery Account for three years and pass Journal Entries for Third year
i.e. 2017-2018.
4. On 1st Jan 2015, Triveni Traders Raigad purchased a Plant for ` 12,000, and installation charges being ` 3,000. On 1st July 2016 another Plant was purchased for ` 25,000, on 1st April 2017 another Plant was purchased for ` 27,000, wages paid for installation amounted to ` 2,000. Carriage paid for the Plant amounted to ` 1,000.
Show Plant Account up to 31st March 2018 assuming that the rate of depreciation is
@10%p.a. on Straight Line Method
5. Sameer & Company, Mumbai purchased a Machine worth ` 2,00,000 on 1st April 2016. On 1st July 2017, the company purchased an additional Machine for ` 40,000.
On 31st March 2019, the company sold the Machine purchased on 1st July 2017 for
` 35,000. Company writes off depreciation at the rate of 10% on the original cost and the books of accounts are closed every year on 31st March. Show the Machinery Account and Depreciation Account for the first three years ending 31st March 2016-17, 2017-18 and 2018-19
6. Samarth Manufacturing Co. Ltd, Aurangabad, purchased a New Machinery for ` 45,000 on 1st Jan 2015 and immediately spent ` 5,000 on its fixation and erection . In the same year 1st July additional Machinery costing ` 25,000was purchased. On 1st July 2016 the Machinery purchased on 1st Jan 2015 became obsolete and was sold for ` 40,000 246 Depreciation was provided for annually on 31st March at the rate of 10% per annum on Fixed Instalment Method. You are required to prepare Machinery Account for the year 2014 - 15, 2015 - 16, 2016-17.
Practical Problems on Written Down Value Method
1. M/s Omkar Enterprise Jalgaon acquired a Printing Machine for `75,000 on 1 Oct 2015 and spent `5,000 on its transport and installation. Another Machine for `45,000 was purchased on 1st Jan 2017. Depreciation is charged at the rate of 20% on Written Down Value Method, on 31st march every year. Prepare Printing Machine Account for the first four years.
2. Vishal Company, Dhule, purchased Machinery costing ` 60,000 on 1st April 2016. They purchased further Machinery on 1st October 2017, costing ` 30,000 and on 1st July 2018, costing ` 20,000. On 1st Jan2019 ,one-third of the Machinery , which was purchased on 1st April 2016, became obsolete and it was sold for ` 18,000.
Assume that, company account closes on 31st March every year. Show Machinery Account for the first three(3)years and pass journal entries for Third year, after charging depreciation at 10% p.a. on Written Down Value Method.
3. Mahesh Traders Solapur purchased Furniture on 1st April 2014 for ` 20,000. In the same year on 1st Oct additional Furniture was purchased for ` 10,000
On 1st Oct 2015, the Furniture purchased on 1st April 2014 was sold for ` 15,000 and on the same day a new Furniture was purchased for ` 20,000. The firm charged depreciation at 10 % p.a. on Reducing Balance Method. Prepare Furniture Account and Depreciation Account for the year ending 31st March 2015, 2016 and 2017.
4. Radhika-Masale’ Amravati purchased a Plant on 1st Jan 2015 for `80,000. A new Plant was also purchased for `60,000,installation expenses being `10,000 on 1st April 2016. On 1st Jan 2017, a new Plant was purchased for `20,000, by disposing-off the 1st Plant at `60,000. Prepare Plant Account and Depreciation Account for 31st March2015, 31st March 2016 and 31st March 2017, assuming that the rate of depreciation was @10%on Diminishing Balance Method.
5. On 1st April 2015 Suman Traders purchased Machinery for ` 30,000. On 1st Oct,2015,they purchased further Machinery costing `20,000. On 1st Oct 2016 they sold the Machine purchased on 1st April 2015 for `18,000 and brought another Machine for `15,000 on the same date. Depreciation is provided on Machinery @20% p.a. on the Diminishing Balance Method and financial year closes on 31st March every year.
Prepare the Machinery Account and Depreciation Account for the year 2015-16, 2016-17 and 2017-18.
