Class 11 Accountancy - Chapter Depreciation, Provisions and Reserves NCERT Solutions | Explain determinants of the amount of de
Explain determinants of the amount of depreciation.
Factors that determining the Amount of Depreciation are as follows:-
1) Original cost of the asset: It implies the cost incurred on its acquisition, installation, commissioning and for additions or improvements thereof which are of capital nature. The cost of asset include the purchase price, less any trade discount plus all the costs essential to bring the asset to a usable condition
2) Estimated life: It implies the period over which an asset is expected to be used. Useful life refers to the window of time that a company plans to use an asset. Useful life can be expressed in years, months, working hours, or units produced. Therefore, the useful life of an asset is generally to be taken in terms of asset’s expected use. This estimated useful life of an asset determines the rate or the amount of depreciation.
3) Residual value: It implies the value expected to be realized on its sale on the expiry of its useful life. This is otherwise known as scrap value or turn-in value. It is the amount of money the company expects to recover, less disposal costs, on the date the asset is scrapped, sold, or traded in. Depreciation should be determined after deducting the estimated scrap value from the cost of the asset.
More Questions From Class 11 Accountancy - Chapter Depreciation, Provisions and Reserves
- Q:-
State whether the following statements are true or false:
- Depreciation is a non-cash expense.
- Depreciation is also charged on current assets.
- Depreciation is decline in the market value of tangible fixed assets.
- The main cause of depreciation is wear and tear caused by its usage.
- Depreciation must be charged so as to ascertain true profit or loss of the business.
- Depletion term is used in case of intangible assets.
- Depreciation provides fund for replacement.
- When market value of an asset is higher than book value, depreciation is not charged.
- Depreciation is charged to reduce the value of asset to its market value.
- If adequate maintenance expenditure is incurred, depreciation need not be charged.
- Q:-
State briefly the need for providing depreciation.
- Q:-
Give four examples each of ‘revenue reserve’ and ‘capital reserves’.
- Q:-
Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?
- Q:-
Give four examples each of ‘provision’ and ‘reserves’.
- Q:-
What are the effects of depreciation on profit and loss account and balance sheet?
- Q:-
Name and explain different types of reserves in detail.
- Q:-
State with reasons whether the following statements are True or False ;
(i) Making excessive provision for doubtful debits builds up the secret reserve in the business.
(ii) Capital reserves are normally created out of free or distributable profits.
(iii) Dividend equalisation reserve is an example of general reserve.
(iv) General reserve can be used only for some specific purposes.
(v) ‘Provision’ is a charge against profit.
(vi) Reserves are created to meet future expenses or losses the amount of which is not certain.
(vii) Creation of reserve reduces taxable profits of the business. - Q:-
Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.
- Q:-
Basaria Confectioner bought a cold storage plant on July 01, 2014 for ₹ 1,00,000. Compare the amount of depreciation charged for first three years using:
- Rate of depreciation @ 10% on original cost basis;
- Rate of depreciation @ on written down value basis;
- Also, plot the computed amount of depreciation on a graph.
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Recently Viewed Questions of Class 11 Accountancy
- Q:-
Mr. Sunrise started a business for buying and selling of stationery with ₹ 5,00,000 as an initial investment. Of which he paid ₹ 1,00,000 for furniture, ₹ 2,00,000 for buying stationery items. He employed a sales person and clerk. At the end of the month he paid ₹ 5,000 as their salaries. Out of the stationery bought he sold some stationery for ₹ 1,50,000 for cash and some other stationery for ₹ 1,00,000 on credit basis to Mr. Ravi. Subsequently, he bought stationery items of ₹ 1,50,000 from Mr. Peace. In the first week of next month there was a fire accident and he lost ₹ 30,000 worth of stationery. A part of the machinery, which cost ₹ 40,000, was sold for ₹ 45,000.
From the above, answer the following :
1. What is the amount of capital with which Mr. Sunrise started business?
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the creditor and state the amount payable to him?
5. What are the expenses?
6. What is the gain he earned?
7. What is the loss he incurred?
8. Who is the debtor? What is the amount receivable from him?
9. What is the total amount of expenses and losses incurred?
10. Determine if the following are assets, liabilities, revenues, expenses or none of the these: sales, debtors, creditors, salary to manager, discount to debtors, drawings by the owner. - Q:-
Balancing of account means :
(i) Total of debit side
(ii) Total of credit side
(iii) Difference in total of debit & credit
(iv) None of these - Q:-
Distinguish between bill of exchange and promissory note.
- Q:-
Which of the following is not an error of commission:
(a) Overcasting of sales book.
(b) Credit sales to Ramesh 5,000 credited to his account.
(c) Wrong balancing of machinery account.
(d) Cash sales not recorded in cash book. - Q:-
What are the objectives of preparing financial statements ?
- Q:-
What is the purpose of preparing trading and profit and loss account?
- Q:-
Explain the factors, which necessitated systematic accounting.
- Q:- Explain the qualitative characteristics of accounting information.
- Q:-
Indicate against each amount wheather it is a debit or a credit balance, and prepare a trial balance as at March 31, 2014 based on the following balances:
Accounts Title Amount ₹
Capital 1,00,000
Drawings 16,000
Machinery 20,000
Sales 2,00,000
Purchases 2,10,000
Sales return 20,000
Purchases return 30,000
Wages 40,000
Goodwill 60,000
Interest received 15,000
Discount allowed 6,000
Bank overdraft 22,000
Bank loan 90,000
Debtors :
Nathu 55,000
Roopa 20,000
Creditors :
Reena 35,000
Ganesh 25,000
Cash 54,000
Stock on April 01, 2013 16,000 - Q:-
List any five users who have indirect interest in accounting.
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