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Depreciation MCQs
2023-06-05 12:16:44

Depreciation MCQs

1. Choose the suitable option which defines depreciation.

  1. The process of increasing the value of an asset over time
  2. The process of reducing the value of an asset over time
  3. The process of transferring an asset to another entity
  4. The process of liquidating an asset

Correct Answer: b. The process of reducing the value of an asset over time

2. Depreciation is produced as a result of _

  1. Increase in the value of the liability
  2. Decrease in capital
  3. Wear and tear
  4. Decrease in the value of assets

Correct Answer: c. Wear and tear

3. Depreciation's primary goal is to _

  1. Show the previous profit
  2. Calculate net profit
  3. Reduce tax
  4. Satisfy the tax department

Correct Answer: b. Calculate net profit

4. What is the reason behind including a depreciation provision in the accounts?

  1. To charge the cost of assets against profits
  2. To show the current market value of a fixed asset
  3. To make cash available to replace fixed assets
  4. To make a provision for repairs

Correct Answer: a. To charge the cost of assets against profits

5. Choose the method of calculating depreciation.

  1. Straight-line method
  2. Double-declining balance method
  3. Units-of-production method
  4. All of the above

Correct Answer: d. All of the above

6. In accordance with the straight-line approach of providing depreciation, the depreciation _________

  1. Remains constant
  2. Increase each year.
  3. Decrease each year
  4. None of them.

Correct Answer: a. Remains constant

7. Which of the following factor affects the amount of depreciation expenses?

  1. The purchase price of the asset
  2. The estimated useful life of the asset
  3. The residual value of the asset
  4. All of the above

Correct Answer: d. All of the above

8. The total amount of an asset's depreciation cannot exceed the asset's ______

  1. Scrap value
  2. Depreciable value
  3. Market value
  4. None of these

Correct Answer: b. Depreciable value

9. What is scrap value?

  1. The value of a product after it has been fully used
  2. The amount of money a company gets from selling a used asset at the end of its useful life
  3. The amount of money a company spends to dispose of a used asset
  4. The value of an asset at the beginning of its useful life

Correct Answer: b. The amount of money a company gets from selling a used asset at the end of its useful life

10. What is depreciable value?

  1. The value of an asset after it has been fully depreciated
  2. The value of an asset at the time of purchase
  3. The value of an asset as determined by an appraiser
  4. The portion of an asset's cost that can be depreciated over its useful life

Correct Answer: d. The portion of an asset's cost that can be depreciated over its useful life

11. How is the depreciable value calculated?

  1. By subtracting the residual value from the purchase price of the asset
  2. By multiplying the purchase price of the asset by its estimated useful life
  3. By adding the residual value to the purchase price of the asset
  4. By dividing the purchase price of the asset by its estimated useful life

Correct Answer: a. By subtracting the residual value from the purchase price of the asset

12. What is residual value?

  1. The value of an asset after it has been fully depreciated
  2. The value of an asset at the time of purchase
  3. The estimated value of an asset at the end of its useful life
  4. The market value of an asset at any given time

Correct Answer: c. The estimated value of an asset at the end of its useful life

13. Choose the example of a depreciable asset from the given option.

  1. Inventory
  2. Cash
  3. Land
  4. Equipment

Correct Answer: d. Equipment

14. Which of the following is an example of a fixed asset?

  1. Inventory
  2. Cash
  3. Land
  4. Accounts payable

Correct Answer: c. Land

15. Which of the following is an example of an intangible asset?

  1. Equipment
  2. Patents
  3. Buildings
  4. Land

Correct Answer: b. Patents

16. What impact does the depreciable value of an asset have on the depreciation method selected?

  1. It does not affect the depreciable value of an asset
  2. It can increase or decrease the depreciable value of an asset
  3. It only affects the residual value of an asset
  4. It only affects the useful life of an asset

Correct Answer: b. It can increase or decrease the depreciable value of an asset

17. What is salvage value?

  1. The value of an asset at the end of its useful life
  2. The cost of an asset at the time of its purchase
  3. The amount of money a company receives from selling an asset
  4. None of the above

Correct Answer: a. The value of an asset at the end of its useful life

18. How is scrap value used in calculating depreciation?

  1. It is subtracted from the cost of the asset to determine the depreciable cost
  2. It is added to the cost of the asset to determine the depreciable cost
  3. It is divided by the useful life of the asset to determine the depreciation expense
  4. It is multiplied by the useful life of the asset to determine the depreciation expense

Correct Answer: a. It is subtracted from the cost of the asset to determine the depreciable cost

19. How does depreciation impact salvage value?

  1. It increases depreciation expense
  2. It decreases depreciation expense
  3. It has no effect on depreciation expense
  4. It is not related to depreciation expense

Correct Answer: b. It decreases depreciation expense

20. Choose the correct option for market value.

  1. The value of a company's assets
  2. The value of a company's liabilities
  3. The price at which an asset would sell in the current market
  4. None of the above

Correct Answer: c. The price at which an asset would sell in the current market

21. Factors affecting market value are

  1. Supply and demand
  2. Economic conditions
  3. Company financial performance
  4. All of the above

Correct Answer: d. All of the above

22. Fixed Instalment Method is also known as __________.

  1. Straight-line Method
  2. Diminishing Balance Method
  3. Units of Production Method
  4. Sum-of-the-Years'-Digits Method

Correct Answer: a. Straight-line Method

23. How is the Fixed Instalment Method used to determine the depreciation charge?

  1. By multiplying the depreciable cost by the useful life of the asset
  2. By dividing the depreciable cost by the useful life of the asset
  3. By adding the salvage value to the depreciable cost and then dividing it by the useful life of the asset
  4. None of these

Correct Answer: b. By dividing the depreciable cost by the useful life of the asset

24. Which of the following applies to the Fixed Instalment Method of Depreciation as an advantage?

  1. It takes into account the usage of the asset
  2. It results in a more accurate calculation of the depreciation charge
  3. It is easy to calculate and understand
  4. All of these

Correct Answer: c. It is easy to calculate and understand

25. What is the Sum of Years Digit?

  1. A method used to calculate the present value of future cash flows
  2. A method used to allocate the cost of an asset over its useful life
  3. A method used to calculate the future value of an investment
  4. A method used to calculate the return on investment

Correct Answer: b. A method used to allocate the cost of an asset over its useful life

26. Which of the following statements regarding the Sum of Years Digit method is true?

  1. Depreciation expense increases each year.
  2. Depreciation expense decreases each year.
  3. Depreciation expense remains constant each year.
  4. Depreciation expense is calculated only in the first year.

Correct Answer: a. Depreciation expense increases each year.

27. A method of depreciation calculation in which the cost of an asset is allocated over its useful life based on the number of units produced each period is known as _______.

  1. Straight-line method
  2. Units-of-production method
  3. Double-declining balance method
  4. None of these

Correct Answer: b. Units-of-production method

28. How is the Unit of Production Method used to determine depreciation costs?

  1. By dividing the asset's cost by its useful life in years
  2. By multiplying the asset's cost by a predetermined percentage
  3. By multiplying the asset's cost by the actual production units in a given period
  4. None of these

Correct Answer: c. By multiplying the asset's cost by the actual production units in a given period

29. What kinds of assets work well with the unit of production method?

  1. Assets with a long useful life
  2. Assets with a short useful life
  3. Assets that are used extensively in production
  4. All of the above

Correct Answer: c. Assets that are used extensively in production

30. What happens if the asset's actual consumption is lower than expected according to the Unit of Production Method?

  1. The depreciation expense is higher than expected
  2. The depreciation expense is lower than expected
  3. The depreciation expense is unaffected
  4. None of these

Correct Answer: b. The depreciation expense is lower than expected

31. What is the diminishing balance method?

  1. A method of calculating interest on loans
  2. A method of calculating the present value of future cash flows
  3. A method of calculating the return on investment
  4. A method of calculating depreciation

Correct Answer: d. A method of calculating depreciation

32. In which method does the rate of depreciation increase as the asset gets older?

  1. Diminishing balance method
  2. Straight-line method
  3. Units-of-production method
  4. Double-declining balance method

Correct Answer: a. Diminishing balance method

33. The diminishing balance rate is calculated as ______.

  1. Dividing the cost of the asset by its estimated useful life
  2. Multiplying the cost of the asset by the salvage value
  3. Subtracting the accumulated depreciation from the cost of the asset
  4. Multiplying the straight-line depreciation rate by a factor

Correct Answer: d. Multiplying the straight-line depreciation rate by a factor

34. Which of these options explains amortization?

  1. a procedure for repaying debt over a predetermined amount of time
  2. a method of reducing an asset's value over its useful life
  3. a technique for raising an asset's worth over the course of its usefulness
  4. a procedure for controlling the risks involved with investments

Correct Answer: b. a method of reducing an asset's value over its useful life

35. Which statement regarding amortisation is true?

  1. It is equivalent to depreciation.
  2. It is employed to ascertain an asset's fair market value.
  3. It is a non-cash expense
  4. It is only used for intangible assets

Correct Answer: c. It is a non-cash expense

36. The amortization expense is calculated by __________.

  1. Dividing the cost of the asset by its useful life.
  2. Multiplying the cost of the asset by its useful life.
  3. Adding the cost of the asset and its salvage value and dividing by its useful life.
  4. Subtracting the salvage value of the asset from its cost and dividing it by its useful life.

Correct Answer: d. subtracting the salvage value of the asset from its cost and dividing it by its useful life.

37. What is obsolescence?

  1. A technique for improving the effectiveness of a good or service.
  2. A process of making a product or service outdated or no longer useful.
  3. A procedure for lowering the price of a good or service.
  4. The process of making a good or service more well-liked.

Correct Answer: b. A process of making a product or service outdated or no longer useful.

38. What are the different types of obsolescence?

  1. Functional obsolescence
  2. Economical obsolescence
  3. Technological obsolescence
  4. All of the above

Correct Answer: d. All of the above

39. A type of obsolescence caused by physical wear and tear or changes in functionality is known as _________

  1. Functional obsolescence
  2. Economical obsolescence
  3. Technological obsolescence
  4. None of these

Correct Answer: a. Functional obsolescence

40. Which of the following option is true about economic obsolescence?

  1. Akind of obsolescence causedby modifications in customer preferences.
  2. Akind of obsolescence brought on by technological developments.
  3. Akind of obsolescence brought on by modifications to governmental rules.
  4. A type of obsolescence caused by changes in the economy.

Correct Answer: d. A type of obsolescence caused by changes in the economy.

41. What does depletion mean in relation to depreciation?

  1. The decrease in value of an asset brought on by wear and tear
  2. The decline in an asset's value brought on by obsolescence
  3. The reduction in the value of a natural resource due to extraction
  4. None of these

Correct Answer: c. The reduction in the value of a natural resource due to extraction

42. Choose the assets which can be depleted.

  1. Land
  2. Buildings
  3. Machinery
  4. Oil reserves

Correct Answer: d. Oil reserves

43. How is depletion treated in accounting?

  1. It appears on the income statement as an expense.
  2. It is recorded as a reduction in the asset's value on the balance sheet.
  3. It is indicated on the balance sheet as an increase in the asset's value.
  4. None of the above

Correct Answer: b. It is recorded as a reduction in the asset's value on the balance sheet.

44. Which of the following best describes deterioration?

  1. A decrease in the value of an asset due to wear and tear over time
  2. A gradual decrease in the amount of taxes due on an asset
  3. An asset's worth rising as a result of improvements made over time
  4. Adecline in an asset's market value brought on by outside factors

Correct Answer: a. A decrease in the value of an asset due to wear and tear over time

45. Which depreciation technique is most frequently applied to account for an asset's deterioration over time?

  1. Double-declining balance depreciation
  2. Sum-of-the-years'-digits depreciation
  3. Units-of-production depreciation
  4. Straight-line depreciation

Correct Answer: d. Straight-line depreciation

46. Choose the asset which is most likely to experience significant deterioration over time.

  1. Land
  2. Patents
  3. Vehicles
  4. Buildings

Correct Answer: c. Vehicles

47. Depreciation affects which of the following financial statements?

  1. Income statement
  2. Balance sheet
  3. Cash flow statement
  4. All of the above

Correct Answer: d. All of the above

48. Which account will be debited for thedepreciation of machinery?

  1. Accumulated Depreciation - Machinery
  2. Machinery Expense
  3. Depreciation Expense
  4. Machinery Asset

Correct Answer: c. Depreciation Expense

49. On what kind of assets is depreciation charged?

  1. Fixed assets.
  2. Current assets.
  3. Both fixed and current assets.
  4. None of the above

Correct Answer: a. Fixed assets

50. Which depreciation strategy would you suggest for coal mines, presuming that the mine's production levels are anticipated to vary noticeably over time?

  1. Straight-line depreciation
  2. Double declining balance depreciation
  3. Units of production depreciation
  4. Sum-of-years' digits depreciation

Correct Answer: c. Units of production depreciation