Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
51
What is considered the primary objective of charging depreciation on fixed assets?
Answer:
To provide funds for replacement
While depreciation is essential for calculating true profit and showing the true financial position, the source answer identifies providing funds for asset replacement as the primary objective. This is a common perspective in accounting theory, suggesting that depreciation helps retain earnings to finance future asset acquisitions.
52
Which of the following factors is not considered a primary cause of depreciation?
Answer:
Obsolescence through technology by market changes
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. Common causes include physical wear and tear from use, the passage of time (effusion of time), and expiration of legal rights. While technological obsolescence is a factor in asset valuation, the provided answer suggests it is not a primary cause of depreciation in this specific context.
53
What term describes the permanent, ongoing, and gradual reduction in the book value of a fixed asset over its useful life?
Answer:
Depreciation
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. It reflects the consumption of economic benefits, wear and tear, or obsolescence, leading to a gradual decrease in the asset's recorded book value on the balance sheet.
54
Which depreciation method is specifically recommended for the valuation and write-off of natural resources?
Answer:
Depletion method
The depletion method is the standard accounting approach for natural resources such as mines, oil wells, and timberlands. It allocates the cost of the resource based on the units extracted during the period, reflecting the physical exhaustion of the asset over time.
55
The depletion method of depreciation is alternatively referred to as which of the following?
Answer:
Output method
The depletion method is primarily used for wasting assets like mines or oil wells. It allocates the cost of the asset based on the units extracted or produced over its useful life. Because the depreciation charge is directly proportional to the physical output or extraction volume, it is commonly known as the output method of depreciation.
56
In the context of calculating depreciation, how is the useful life of a fixed asset determined?
Answer:
An estimate
The useful life of a fixed asset is an estimate based on the period over which the entity expects to use the asset or the number of production units expected to be obtained from it. Because it is impossible to predict the exact moment an asset will cease to be useful, management must use professional judgment to estimate this duration, which is subject to periodic review.
57
How is depreciation defined in accounting terms?
Answer:
Portion of a fixed asset’s cost consumed during the current accounting period
Depreciation represents the systematic allocation of the cost of a tangible fixed asset over its useful life. It reflects the wear and tear, obsolescence, or usage of the asset during a specific accounting period, ensuring that expenses are matched against the revenue generated by that asset.
58
Which of the following terms are considered types of depreciation expenses?
Answer:
Both of these
Depreciation refers to the allocation of the cost of tangible assets. Amortization is the systematic allocation of the cost of intangible assets, while depletion refers to the allocation of the cost of natural resources. All three represent the process of allocating the cost of an asset over its useful life, making them conceptually similar in accounting practice.
59
What is the primary cause of depreciation for a fixed asset?
Answer:
Physical wear and tear
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. The primary causes include physical wear and tear due to usage, obsolescence due to technological advancements, and the passage of time, which reduces the asset's utility and value to the business.
60
Which term is specifically used to describe the systematic allocation of the cost of natural resources?
Answer:
Depletion
Depletion refers to the reduction in the value of natural resources, such as oil, gas, or timber, as they are extracted or consumed over time. While depreciation applies to tangible fixed assets and amortization applies to intangible assets, depletion is the standard term for the exhaustion of natural resource assets.