# MCQs for Accountancy Class 11 with Answers Chapter 7 Depreciation Provisions and Reserves

Refer to MCQs for Accountancy Class 11 with Answers Chapter 7 Depreciation Provisions and Reserves designed as per the latest syllabus issued by CBSE. All Multiple choice questions have been provided with solutions and have been prepared based on the expected pattern in upcoming board exams. MCQs Chapter 7 Depreciation Provisions and Reserves have been prepared by our team of best accountancy teachers

Question. Which method of depreciation suffers from the limitation of unequal burden on profit and loss account?
(a) Fixed Instalment Method
(b) Reducing Balance Method
(c) Depletion Method
(d) Annuity method

A

Question. Depreciation is a process of:
(a) Allocation of cost
(b) None of the above
(c) Valuation of asset
(d) Both valuation of asset and allocation of cost

A

Question. Which of the following statements is NOT true about Provisions?
(a) It is an appropriation of profit.
(b) It is a charge against profits.
(c) It is shown on the liability side of Balance sheet.
(d) It is discretionary as a matter of financial prudence.

A

Question. If the amount of any known liability cannot be determined with substantial accuracy:
(a) A provision should be created.
(b) A Contingent liability should be created.
(c) A definite liability should be created.
(d) A reserve should be created.

A

Question. As per the Original Cost method which is the correct formula for calculating Annual depreciation?
(a) Depreciation = Cost of asset Scrap value/ Estimated life of asset
(b) Depreciation = Scrap value – Cost of asset / Estimated life of asset
(c) Depreciation = Cost of asset – Market value / Estimated life of asset
(d) Depreciation = Cost of asset – Scrap value/ Market value of asset

A

Question. Which of the following is the cause of depreciation?
(a) By permanent fall in prices
(b) By constant use
(c) By Expiry of time
(d) All of the options

D

Question Which one is not the cause of depreciation?
(a) Efflux of time.
(b) Price fluctuation.
(c) Obsolescence.
(d) Natural wear and tear.

B

Question. According to Companies Act, creation of secret reserve is prohibited except in case of______
(a) Banking, Insurance and Financial companies
(b) Commercial undertakings
(c) Industrial undertakings
(d) NGOs.

A

Question. Any reserve which is not apparent on the face of Balance sheet is known as______
(a) Secret reserve.
(b) General Reserve
(c) Revenue reserve
(d) Capital Reserve

A

Question. Provision is a______against profits to meet______liabilities.
(a) Charge & unknown
(b) Appropriation & Known
(c) Appropriation & unknown.
(d) Charge & Known

A

Queston. Depreciation is calculated from the date of .
(a) Purchase of asset
(b) Receipt of asset at business premises
(c) Asset put to use
(d) Asset installed

C

Queston. A machine was purchased on 1st April 2020 for Rs.5,00,000 and on 1st October, 2020 a new machine is added for Rs.2,00,000. Calculate the balance of machine account, if depreciation is charged at 20% p.a. on written down value method for the year ending March 31, 2020.
(a) Rs.6,00,000
(b) Rs.5,60,000
(c) Rs.6,60,000
(d) Rs.5,80,000

D

Question. The term____is used to show loss in the value of intangible assets.
(a) Amortization
(b) Obsolescence
(c) Depletion
(d) Depreciation

A

Question  Provisions are
(a) external transactions.
(b) internal transactions,
(c) Can be (a) or (b).
(d) None of these.

B

Question. What will be the amount of loss suffered on machinery purchased for Rs. 10,000 on 1-1-2010 and sold for Rs. 5000 on 30-6-12. The rate of depreciation charged 10% p.a. on written down method.
(a) 1926
(b) 1927
(c) 1925
(d) 1928

C

Question If the amount of any known liability can be determined with accuracy
(a) a liability should be provided.
(b) a provision should be made,
(c) a reserve should be set aside.
(d) None of these.

A

Question. Which of the following is the example of Capital Reserve?
(a) Workmen’s Compensation Fund
(b) None of these
(d) General Reserve

C

Question. General Reserves are shown in :
(a) Revaluation Account
(b) Profit and Loss Account
(c) None of these
(d) Balance Sheet

D

Question. The loss on sale of an asset is debited to:
(a) Profit and Loss Account
(b) Trial Balance Cr. Side
(c) Balance Sheet

A

Question Charging depreciation is
(a) compulsory.
(b) voluntary,
(c) dependent on the condition of assets.
(d) None of these.

A

Question. Provision is created by debiting :
(a) Profit and Loss Account
(b) None of these
(c) Profit and Loss Appropriation Account

A

Question. Every fixed asset loses its value due to use or other reasons. This decline in the value of asset is known as
(a) Amortization
(b) Provisions
(c) Depreciation
(d) Devaluation

C

Queston. What will be the percentage of depreciation under SLM in the following case:
Original Cost of Machine Rs. 1,50,000
Salvage value after 9 years Rs. 15,000
Repair charges in 2nd year Rs. 10,000
(a) 11.11%
(b) 10%
(c) 10.34%
(d) 9.37%

B

Queston. A Ltd. purchased a machine on 1.1.2020 for Rs.1,20,000. Installation expenses were Rs.30,000. Residual value after 5 years Rs.5,000. On 1.7.2020, expenses for repair were incurred to the extent of Rs.2,000. Depreciation is provided @10% p.a. under written down value method. Total depreciation after 2nd year
(a) Rs.25,000
(b) Rs. 13,000
(c) Rs. 10,500
(d) Rs.28,500

D

Queston. Which of the following best describes the ‘Depreciation’ ?
(a) Valuation of fixed asset at the end of the year
(b) Verification of assets
(c) Allocation of cost of fixed assets over its useful life
(d) Decreasing the market value of asset

C

Question If the amount of any known liability cannot be determined with accuracy
(a) a liability should be provided.
(b) a provision should be made,
(c) a reserve should be set aside.
(d) None of these.

B

Question  Depreciation is
(a) Revenue Expenditure.
(b) Capital Expenditure.
(c) Deferred Revenue Expenditure.
(d) None of these.

A

Question. Following are the causes of Depreciation except
(a) Natural resources
(b) Fixed asset
(c) Liabilities
(d) Intangible assets

A

Question. Depreciation charged under diminishing method
(a) Increase every year
(b) Decrease every year
(c) Increase in one year and decrease another year
(d) Same every year

B

Question A Provision is
(a) an appropriation of profits.
(b) a charge against profit.
(c) Can be (a) or (b).
(d) None of these. –

B

Question. What is the rate of charging depreciation under diminishing method?
(a) 12% p.a.
(b) 15% p.a.
(c) 10% p.a.
(d) Not fixed

D

Question Depreciation is charged on
(a) Current Assets.
(b) Fixed Assets.
(c) Total Assets.
(d) Fictitious Assets.

B

Question. Dividend Equalisation Reserve is :
(a) Specific Reserve
(b) None of these
(c) Secret Reserve
(d) General Reserve

A

Queston. Ambuja Cement Ltd. purchased a machine on 1-1-2020 for Rs.1,20,000. Installation expenses were Rs. 10,000. Its residual value after 10 year is Rs.5,000. On 1-03-2020 expenses on its repairs were incurred to the extent of Rs.2,000. Depreciation is provided under straight line method. Books are closed on 31st March every year. The amount of depreciation for the current year will be:
(a) Rs. 3,125
(b) Rs. 3,175
(c) Rs. 12,500
(d) Rs. 12,700

A

Question. Under Reducing Balance Method, depreciation to be charged:
(a) Scrap Value
(b) Original value
(c) Real Value
(d) None of these

D

Question. Which of the following is a correct distinction between a Revenue reserve and a Capital reserve?
(a) A revenue reserve is created out of capital profits whereas a capital reserve is created out of business profits.
(b) A revenue reserve can be used for distribution of dividend with certain preconditions whereas a capital reserve can be used for distribution of dividend without any preconditions
(c) A revenue reserve is created for strengthening the financial position whereas capital reserve is created for meeting capital losses or to be used for purposes specified by the Companies Act.
(d) There is no distinction between revenue reserve and capital reserve

C

Question The term amortisation is used to write off
(a) Fixed Assets.
(b) Intangible Assets.
(c) Tangible Assets.
(d) Wasting Assets.

B

Queston. The W.D.V. of an asset after three years of depreciation on reducing balance method @15% p.a. is Rs.49,130. What was its original value?
(a) Rs.40,000
(b) Rs.80,000
(c) Rs.45,000
(d) Rs.70,250

B

Question  A machine is purchased on 1st April, 2018 for Rs. 80,000. Expenses incurred on its installation is Rs. 20,000. The residual value at the end of its expected useful life of 4 years is estimated at Rs. 10,000. The amount of depreciation under Straight Line Method, for the year ended on 31st March, 2019 will be:
(a) Rs. 22,500.
(b) Rs. 20,000.
(c) Rs. 17,500.
(d) Rs. 13,125.

A

Question. At the end of the year, Depreciation Account is transferred to:
(a) Balance Sheet
(c) Profit & Loss Appropriation Account
(d) Profit & Loss Account

D

Queston. Original cost of an asset is Rs. 1,26,000; Salvage value is Rs.6,000; Useful Life is 6 Years. The rate of depreciation under Straight Line Method will be:
(a) 15.87%
(b) 16.67%
(c) 15.80%
(d) 16.56%

A

Queston. Which one of the following is not a feature of written down value method of depreciation?
(a) The book value of the asset becomes zero at any one point of time
(b) The depreciation is calculated on the book value of assets and not on the cost
(c) The amount of depreciation charged on a specific asset reduces every year.
(d) There is no need to estimate the residual value and estimated life at the time of deciding the amount of depreciation

A

Queston. In the books of D Ltd. the Machinery Account shows a debit balance of Rs.60,000 as on April 1, 2020 and Provision for Depreciation A/c at Rs.24,000. The machinery was sold on September 30, 2020 for Rs.30,000. The company charges depreciation @20% p.a. on diminishing balance method. Profit / Loss on sale of the machinery is:
(a) Rs. 1,200 Profit
(b) Rs.2,400 Loss
(c) Rs.2,400 Profit
(d) Rs. 1,200 Loss

B

Question. If the amount of any known liability cannot be determined accurately.
(a) Provision should be created
(b) Definite liability should be created
(c) Reserve should be created
(d) Should be shown as a contingent liability

A

Question Reserves arising from capital receipts are known as
(a) Capital Reserve.
(b) Reserve Fund,
(c) Any of (a) and (b).
(d) None of these.

A

Question. Which of the following statements are correct about a “Provision”?
(i) Provisions are a charge against the profits of an enterprise
(ii) Provisions are created out of divisible profits
(iii) Creation of provisions are not necessary for a business
(iv) Provisions are created to meet a known liability
(a) (i), (U) and (iii)
(b) (ii) and (iv) only
(c) (i), (iii) and (iv)
(d) (i) and (iV) only

D

Queston. Depreciation is provided on:
(a) Current Assets
(b) Intangible Assets
(c) Fixed Assets
(d) Fictitious Assets

C

Question. The loss on sale of an asset is debited to:
(a) Profit and Loss Account
(b) Trial Balance Cr. Side
(c) Balance Sheet

A

Question A machinery which costs Rs. 2,00,000 is depreciated at 25% per year using the Written Down Value Method. At the end of three years, it will have a net book value of
(a) Rs. 1,50,000.
(b) Rs. 84,375.
(c) Rs. 1,12,500.
(d) Rs. 1,00,000.

B

Question  Amount of depreciation charged under diminishing balance method remains
(a) Increasing.
(b) Decreasing.
(c) Fixed.
(d) Fluctuating.

B

Question. Depreciation is Charged on :
(a) Current Assets
(b) Fixed Tangible Assets
(c) None of these
(d) Both Current and Fixed Assets

B

Question. Which of the following is the example of Capital Reserve?
(a) Workmen’s Compensation Fund
(b) None of these
(d) General Reserve

C

Question. Which of the following statements is not appropriate in relation to “Provision”?
(a) Provision is a charge against profit
(b) Provision is created for known liability
(c) Provision is created for strengthening the financial position of the business.
(d) Creation of provision satisfies the principle of conservatism.

C

Question. The cause of Depreciation is :
(a) Wear and tear
(b) Obsolescence
(c) Usage of Asset
(d) All of these

D

Queston. Amortisation refers to writing off …………. . ..
(a) Depleting Assets
(b) Wasting Assets
(c) Intangible Assets
(d) Fictitious Assets

C

Question  Profit on sale of fixed asset is used to create
(a) Specific Reserve.
(b) General Reserve.
(c) Capital Reserve.
(d) None of these.

C

Question  Which of the following is not a cause of depreciation
(a) Wear and Tear.
(b) Passage of Time.
(c) Fall in the Market Value.
(d) Accident,

C

Question. …………..may be invested outside the business to earn income
(a) Depreciation
(b) Reserves
(c) Provisions
(d) All of the above

B

Question. Provision is created by debiting :
(a) Profit and Loss Account
(b) None of these
(c) Profit and Loss Appropriation Account

D

Question  Depreciation on fixed assets is
(a) cash transaction.
(b) internal transaction.
(c) external transaction.
(d) No transaction at all.

B

Question  Depreciation is a
(a) Reserve.
(b) Provision.
(c) Both (a) and (b).
(d) None of these.

B

Question  The term depreciation is used to write off
(a) Fixed Assets.
(b) Tangible Fixed Assets other than Land.
(c) Intangible Assets.
(d) Wasting Assets.

B

Question. Dividend Equalization Reserve is a
(a) General Reserve
(b) Secret Reserve
(c) Specific Reserve
(d) None of the above

C

Question Provision is a
(a) Specific Reserve.
(b) General Reserve.
(c) Capital Reserve.
(d) None of these.

D

Question. Capital profit is
(a) Profit from sale of goods
(b) Profit from sale of marketable securities
(c) Profit from sale of long term investment
(d) Both b & c

C

Question  Under diminishing balance method, depreciation is charged on
(a) Original Cost.
(b) Written Down Value.
(c) Cost of Production.
(d) Net Profits.

B

Question. Which of the following is not a type of reserve
(b) General reserve
(c) Workmen compensation fund
(d) Retained earnings

A

Queston. What is the amount of difference between the closing balances of two machines after two years is both machines were purchased on the same date with the same amount i.e., for Rs. 1,00,000? Machine I is depreciated by 20% p.a. on Straight Line Method and Machine II is depreciated by 20% p.a. on Diminishing Balance Method:
(a) Value of Machine II is more by Rs.2,000
(b) Value of Machine I is more by Rs.4,000
(c) Value of Machine II is more by Rs.4,000
(d) Value of Machine II is less by Rs.2,000

C

Question. Under which depreciation method the amount of depreciation expenses remains same throughout the useful life of a fixed asset
(a) Straight line method
(b) Reducing balance method
(c) Number of units produced method
(d) Machine hours method

A

Question. Following are the causes of Depreciation except
(a) Wear and tear due to use or passage of time.
(b) Normal factors
(c) Expiration of legal rights.
(d) Obsolescence.

B

Question. Which of the following is a correct difference between a provision and reserve?
(a) A provision is created out of a legal necessity whereas a reserve is created as a matter of prudence.
(b) A provision is invested whereas reserve is not invested
(c) A provision is an appropriation of profit whereas a reserve is a charge against profit
(d) A provision can be used for distribution of dividend whereas a reserve cannot be allowed to be used for distribution of dividend.

A

Question Depreciation is a process of
(a) valuation of asset.
(b) allocation of cost.
(c) both of valuation of asset and allocation of cost.
(d) None of the above.

B

Question  An asset was purchased for Rs. 5,00,000 and as per reducing balance method, 20% deprecation is charged each year. What is the value of assets at the end of three years?
(a) Rs. 3,50,000.
(b) Rs. 2,56,000.
(c) Rs. 4,00,000.
(d) Rs. 3,20,000.

B

Question. Depreciation helps in determining
(a) Accurate level of profit
(b) Increases the value of asset
(c) Revenue generation
(d) Increase the burden of tax

A

Question. An alternative term used for accumulated depreciation expenses?
(a) Provision for depreciation
(b) Cumulative depreciation
(c) Targeted depreciation
(d) Depletion