Copyright 2012 Dorling Kindersley (India) Pvt.

Ltd

Chapter 8: Accounting for Fixed Assets and Depreciation

Multiple Choice Questions
1. Which of the following expenses can be capitalized: a. Purchase price of the asset b. Installation Cost c. Cost of test run d. Interest on borrowed funds for acquiring the asset e. All of the above 2. Which of the following statements is true about depreciation: a. It represents fall in the market price of the asset due to passage of time b. It results in creation of cash reserves necessary for replacement of asset c. It involves apportionment of cost of an asset over its useful life in a systematic manner d. Depreciation is charged both on current assets as well as fixed assets e. Both b) and c) above 3. Depreciation as per SLM as compared to WDV: a. Is always lower b. Is always higher c. Is higher in the initial years and lower in the later years d. Is lower in the initial years and higher in the later years e. None of the above 4. Apportionment of cost of intangible assets over its useful life is called: a. Amortization

Sanjay Dhamija

Financial Accounting for Managers

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd

b.

Depletion

c. Depreciation d. Impairment e. Obsolescence 5. As per Indian Income Tax Act 1961, depreciation is computed by using: a. Straight Line Method b. Written Down Value Method c. Sum of Year Digits Method d. Either a) or b) at the discretion of the management e. Either a) or b) at the discretion of the Income Tax Officer 6. Which of the following expenses can be recognized as Intangible asset: a. Advertising expenses to create brand image of the company b. Expenses incurred to search for a new drug c. Development expenses for a new design resulting in a patent d. Training expenses to enhance employees skills e. Software expenses 7. A machine purchased on 1st January 2009 for `10 million is being depreciated using straight line method with a useful life of 10 years and residual value of `1 million. The gross block in the Balance Sheet as on 31st December 2011 in respected of this machine will be: a. `7 million b. `8 million c. `7.3 million

Sanjay Dhamija

Financial Accounting for Managers

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd

d. `8.2 million e. `10 million 8. A machine purchased on 1st January 2009 for `10 million is being depreciated using written down value @ 20% per annual. Proportionate depreciation is charged in the year of acquisition. The depreciation to be charged in the Profit & Loss A/c for the year ended 31st March 2012 in respect of this machine will be: a. `2,000,000 b. `1,024,000 c. `1,280,000 d. `1,520,000 e. None of the above 9. Goodwill recognized on acquisition is: a. Not amortized in the books of accounts b. Amortized over a period of 5 years c. Amortized over a period of 10 years d. Amortized over a period of 15 years e. Amortized over a period decided by the management 10. Which of the following is true in respect of intangible assets: a. They are normally amortized over 10 years b. Residual value is assumed to be zero c. They are amortized using Straight Line Method d. All of the above are true e. None of the above are true

Sanjay Dhamija

Financial Accounting for Managers

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd

Objective Type Questions:

1. Name them: a. Assets intended to be used over a long period of time b. Apportionment of cost of intangible assets over its useful life c. Assets without any physical substance d. Method of providing depreciation where same amount of depreciation is charged each year e. Apportionment of cost of natural resources over its useful life f. Methods of charging depreciation where higher depreciation is charged in the initial years g. Difference between the carrying amount of an asset and its recoverable amount h. Excess of purchase consideration over the net assets being acquired 2. True of False a. Once an asset is sold, it is removed from the book of accounts b. Gain arising on revaluation of an asset is transferred to Profit & Loss Account c. Depreciation rates as per Companies Act and Income Tax Act are same d. Land is depreciated on a SLM basis e. Expenses incurred on research can be capitalized f. Self generated goodwill cant be recognized g. As per WDM the net book value of the asset will never fall to zero h. Depreciation is a non-cash expense i. Intangible assets are normally amortized on WDM basis. j. Research and Development costs are capitalized as Intangible asset.

Sanjay Dhamija

Financial Accounting for Managers

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd

Multiple Choice Questions

1. e) All expenses incurred to bring the asset to its intended use. 2. c) Depreciation is charged only on fixed assets, it does not reflect fall in market price nor provides funds for replacement of asset. 3. d) 4. a) 5. b) 6. c) All other options do not meet the criteria for recognition and an intangible asset 7. e) Gross block will continue to be shown at the cost of acquisition 8. d) Depreciation for 2009-10 : `500,000, 2010-11: `1,900,000 and 2011-12: `1,520,000 9. b) As per AS 26 goodwill is amortized over a period not exceeding 5 years. 10. d) As per AS 26 intangible assets are usually amortized over 10 years using straight line method with nil residual value.

Objective Type Questions:

1. Name them a. Fixed Assets b. Amortization c. Intangible Assets d. Straight Line Method e. Depletion f. Accelerated Methods g. Impairment h. Goodwill 2. True or False a. True b. False transferred directly to Revaluation Reserve Account c. False d. False Land is a non depreciable asset e. False Charged to Profit & Loss Account f. True g. True h. True i. False They are amortized using SLM j. False Research costs are treated as expense whereas development costs are capitalized as intangible assets.

Sanjay Dhamija

Financial Accounting for Managers