Chapter Exam

Chapter 7: Depreciation — Online MCQ Test

Q: Which of the following is NOT a cause of depreciation?

Answer: C. Increase in demand for products — Increase in demand is not a cause of depreciation; rather, depreciation is caused by wear and tear, obsolescence, and the passage of time.

Q: Formula for depreciation using the Straight Line Method is:

Answer: A. (Cost - Salvage Value) / Useful Life in Years — The Straight Line Method formula is (Cost - Salvage Value) divided by the number of years of useful life, giving equal annual depreciation.

Q: A machine was purchased for ₹50,000 with an estimated salvage value of ₹5,000 and useful life of 5 years. Using the Straight Line Method, what is the annual depreciation?

Answer: A. ₹9,000 — Annual Depreciation = (₹50,000 - ₹5,000) / 5 = ₹45,000 / 5 = ₹9,000

Q: A machine was purchased for ₹2,00,000. Using Written Down Value Method at 20% per annum, what is the book value after 2 years?

Answer: A. ₹1,28,000 — Year 1: Depreciation = ₹2,00,000 × 20% = ₹40,000; Book Value = ₹1,60,000. Year 2: Depreciation = ₹1,60,000 × 20% = ₹32,000; Book Value = ₹1,28,000.

Q: A machinery purchased for ₹5,00,000 is depreciated at 10% per annum using the Written Down Value method. After how many complete years will the book value be approximately ₹2,71,550?

Answer: C. 6 years — Using WDV: Year 1: ₹4,50,000; Year 2: ₹4,05,000; Year 3: ₹3,64,500; Year 4: ₹3,28,050; Year 5: ₹2,95,245; Year 6: ₹2,65,720.5 ≈ ₹2,71,550 is close to Year 5-6 transition. Exact calculation: ₹5,00,000 × (0.9)^n = ₹2,71,550. (0.9)^n = 0.5431. n ≈ 6 years.

ACCOUNTANCY · Grade 11 · CBSE(NCERT)

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Chapter 7: Depreciation — Important Questions & Answers (FAQ)

Frequently asked questions from CBSE(NCERT) Grade 11 ACCOUNTANCY — Chapter 7: Depreciation, with answers and explanations. These are sample questions; the exam has its own separate question set.

What is depreciation?

A. Permanent decrease in the value of an asset due to wear and tear, obsolescence, or passage of time ✓
B. Temporary reduction in asset value
C. Loss incurred due to theft or damage
D. Decrease in market price of an asset

Answer: A. Permanent decrease in the value of an asset due to wear and tear, obsolescence, or passage of time
Depreciation is the permanent and gradual decrease in the value of a fixed asset due to its usage, time, and obsolescence.

Which of the following is NOT a cause of depreciation?

A. Wear and tear
B. Obsolescence
C. Increase in demand for products ✓
D. Passage of time

Answer: C. Increase in demand for products
Increase in demand is not a cause of depreciation; rather, depreciation is caused by wear and tear, obsolescence, and the passage of time.

What is the cost of an asset?

A. Purchase price plus direct expenses incurred to acquire and install the asset ✓
B. Only the purchase price
C. Market price at the end of the year
D. Salvage value of the asset

Answer: A. Purchase price plus direct expenses incurred to acquire and install the asset
Cost of an asset includes the purchase price plus all direct expenses required to acquire, transport, and install the asset for use.

What is salvage value (or scrap value)?

A. The estimated value of an asset at the end of its useful life ✓
B. The original cost of the asset
C. The amount of depreciation charged annually
D. The market price on the date of purchase

Answer: A. The estimated value of an asset at the end of its useful life
Salvage value is the estimated residual value of an asset remaining after its useful life has ended.

Formula for depreciation using the Straight Line Method is:

A. (Cost - Salvage Value) / Useful Life in Years ✓
B. (Cost + Salvage Value) / Useful Life in Years
C. (Cost - Salvage Value) × Useful Life in Years
D. Cost × Depreciation Rate

Answer: A. (Cost - Salvage Value) / Useful Life in Years
The Straight Line Method formula is (Cost - Salvage Value) divided by the number of years of useful life, giving equal annual depreciation.

A machine was purchased for ₹50,000 with an estimated salvage value of ₹5,000 and useful life of 5 years. Using the Straight Line Method, what is the annual depreciation?

A. ₹9,000 ✓
B. ₹10,000
C. ₹8,000
D. ₹7,500

Answer: A. ₹9,000
Annual Depreciation = (₹50,000 - ₹5,000) / 5 = ₹45,000 / 5 = ₹9,000

What is the key difference between a Provision and a Reserve?

A. A Provision is for a known liability of uncertain amount; a Reserve is an appropriation of profit for future needs ✓
B. A Provision is voluntary; a Reserve is compulsory
C. A Provision relates to assets; a Reserve relates to liabilities
D. A Provision increases profit; a Reserve decreases profit

Answer: A. A Provision is for a known liability of uncertain amount; a Reserve is an appropriation of profit for future needs
Provisions are created against known liabilities, while Reserves are voluntary appropriations of profits for specific future purposes.

A machine was purchased for ₹2,00,000. Using Written Down Value Method at 20% per annum, what is the book value after 2 years?

A. ₹1,28,000 ✓
B. ₹1,20,000
C. ₹1,32,000
D. ₹1,44,000

Answer: A. ₹1,28,000
Year 1: Depreciation = ₹2,00,000 × 20% = ₹40,000; Book Value = ₹1,60,000. Year 2: Depreciation = ₹1,60,000 × 20% = ₹32,000; Book Value = ₹1,28,000.

Which of the following statements is MOST LIKELY to be TRUE regarding depreciation provisions?

A. Depreciation is a non-cash expense but is recorded as a provision to allocate asset costs over its useful life in compliance with accounting standards ✓
B. Depreciation is charged only when an asset is sold or becomes obsolete
C. Depreciation can be charged or not charged based on the business's profitability in that year
D. Depreciation provisions are optional and left to the discretion of management

Answer: A. Depreciation is a non-cash expense but is recorded as a provision to allocate asset costs over its useful life in compliance with accounting standards
Depreciation is a non-cash expense provision required by accounting standards to systematically allocate the cost of fixed assets over their useful lives, regardless of profitability.

A machinery purchased for ₹5,00,000 is depreciated at 10% per annum using the Written Down Value method. After how many complete years will the book value be approximately ₹2,71,550?

A. 4 years
B. 5 years
C. 6 years ✓
D. 7 years

Answer: C. 6 years
Using WDV: Year 1: ₹4,50,000; Year 2: ₹4,05,000; Year 3: ₹3,64,500; Year 4: ₹3,28,050; Year 5: ₹2,95,245; Year 6: ₹2,65,720.5 ≈ ₹2,71,550 is close to Year 5-6 transition. Exact calculation: ₹5,00,000 × (0.9)^n = ₹2,71,550. (0.9)^n = 0.5431. n ≈ 6 years.

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