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
1
What is the typical normal balance for an accumulated depreciation account?
Answer:
Credit balance
Accumulated depreciation is a contra-asset account. Since asset accounts normally have debit balances, their contra accounts, which reduce the book value of the asset, carry a normal credit balance. This balance increases as depreciation expense is recorded over the useful life of the asset.
2
When recording the adjusting entry for depreciation on machinery, which account is credited?
Answer:
Credited
Depreciation is an expense that reduces the book value of an asset. The adjusting entry involves debiting the Depreciation Expense account and crediting the Accumulated Depreciation account (a contra-asset account). Crediting the asset account directly is also a valid method, though less common in modern practice.
3
When recording depreciation on machinery, which account should be debited?
Answer:
Depreciation account
Depreciation is an expense representing the allocation of the cost of a tangible asset over its useful life. According to the rules of nominal accounts, all expenses and losses are debited. Therefore, the Depreciation account is debited, while the Accumulated Depreciation or the asset account is credited.
4
Where is the depreciation expense typically reported within the financial statements?
Answer:
Expenses section of the Profit and Loss Account
Depreciation represents the systematic allocation of the cost of a tangible asset over its useful life. As an operating expense, it is recorded in the Profit and Loss Account to determine the net profit. While the accumulated depreciation reduces the book value of the asset on the Balance Sheet, the annual charge itself is an expense.
5
Where is the Provision for Depreciation account typically presented in the financial statements?
Answer:
Liability side
The Provision for Depreciation (or Accumulated Depreciation) account is a contra-asset account. In the balance sheet, it is traditionally shown as a deduction from the original cost of the asset on the asset side. However, in some accounting formats, it may be presented on the liability side to represent the accumulated value written off.
6
How is depreciation treated when it appears within the Trial Balance?
Answer:
Debited to P&L A/c
When depreciation is already listed in the Trial Balance, it indicates that the adjustment has already been made to the asset account. Therefore, it is treated as an expense for the period and is debited directly to the Profit and Loss account. It is not deducted from the asset again in the Balance Sheet as the book value is already adjusted.
7
What is the correct double-entry recording for depreciation expenses?
Answer:
Depreciation expenses Debit and accumulated depreciation Credit
Depreciation is an expense that reduces the value of an asset over time. According to the accrual principle, the expense is recognized by debiting the Depreciation Expense account. The corresponding credit is made to the Accumulated Depreciation account, which is a contra-asset account that reduces the book value of the fixed asset on the balance sheet.
8
To which account is the depreciation expense on machinery debited?
Answer:
Depreciation account
Depreciation is an expense that reduces the value of an asset over time. According to standard accounting practice, the depreciation expense is debited to the depreciation account (an expense account) and credited to the accumulated depreciation account (a contra-asset account) to reflect the loss in value of the machinery.
9
Which journal entry correctly records the annual depreciation expense for a fixed asset?
Answer:
Depreciation expenses debit and accumulated depreciation credit
Under the accrual basis of accounting, depreciation is recorded by debiting the Depreciation Expense account to reflect the cost allocation for the period and crediting the Accumulated Depreciation account, which is a contra-asset account. This process reduces the carrying value of the asset on the balance sheet while recognizing the expense on the income statement, adhering to the matching principle.
10
A machine was purchased for $20,000 two years ago and is now sold for $13,000. If the business depreciates machinery at 10% per annum on cost, and the existing provision for depreciation account balance is $28,000, what is the balance of the provision for depreciation account after this sale?
Answer:
$24 000
The annual depreciation is 10% of $20,000, which is $2,000. Over two years, the accumulated depreciation for this specific machine is $4,000. When the machine is sold, this $4,000 must be removed from the total provision for depreciation account. Therefore, $28,000 - $4,000 = $24,000. This adjustment ensures the provision account reflects only the depreciation of remaining assets.