MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO DEPRECIATION UNDER THE INCOME TAX ACT 1961 AS WELL AS THE COMPANIES ACT 2013
Which of the following methods of depreciation is not recognized under the Income Tax Act, 1961?
a) Straight-line method
b) Written-down value method
c) Sum-of-the-years-digits method
d) Unit of production method
Answer: a) Straight-line method
Under the Companies Act, 2013, which schedule provides the rules for depreciation?
a) Schedule III
b) Schedule VI
c) Schedule V
d) Schedule IV
Answer: a) Schedule III
Which of the following assets is not eligible for depreciation under both the Income Tax Act, 1961 and the Companies Act, 2013?
a) Building
b) Machinery
c) Land
d) Furniture
Answer: c) Land
According to the Income Tax Act, 1961, what is the maximum rate of depreciation for computer software?
a) 15%
b) 25%
c) 60%
d) 100%
Answer: b) 25%
Which of the following depreciation methods is commonly used for tangible assets under both the Income Tax Act, 1961 and the Companies Act, 2013?
a) Units of production method
b) Declining balance method
c) Straight-line method
d) Annuity method
Answer: b) Declining balance method
Under the Income Tax Act, 1961, what is the minimum useful life for an asset to claim depreciation?
a) 3 years
b) 5 years
c) 8 years
d) 10 years
Answer: b) 5 years
Which of the following acts provides for the provision of depreciation at a higher rate for certain assets used in the power generation sector?
a) Income Tax Act, 1961
b) Companies Act, 2013
c) Electricity Act, 2003
d) Goods and Services Tax Act, 2017
Answer: c) Electricity Act, 2003
Which of the following depreciation methods is specifically allowed for intangible assets under the Income Tax Act, 1961?
a) Units of production method
b) Straight-line method
c) Declining balance method
d) None of the above
Answer: b) Straight-line method
Under the Companies Act, 2013, what is the maximum useful life for calculating depreciation?
a) 5 years
b) 10 years
c) 15 years
d) 20 years
Answer: c) 15 years
What is the purpose of providing depreciation in accounting and taxation?
a) To reduce taxable income
b) To distribute the cost of an asset over its useful life
c) To increase the market value of assets
d) Both a and b
Answer: d) Both a and b
Which of the following depreciation methods is commonly used for assets whose value decreases more rapidly in the initial years of use?
a) Straight-line method
b) Declining balance method
c) Sum-of-the-years-digits method
d) Units of production method
Answer: b) Declining balance method
Under the Income Tax Act, 1961, which of the following assets qualifies for accelerated depreciation?
a) Computers
b) Land
c) Office furniture
d) Buildings
Answer: a) Computers
In the context of depreciation, what does ‘residual value’ refer to?
a) The value of an asset at the end of its useful life
b) The initial cost of the asset
c) The value of the asset after depreciation
d) The salvage value of the asset
Answer: a) The value of an asset at the end of its useful life
Which of the following depreciation methods considers the actual usage of an asset to determine depreciation expense?
a) Straight-line method
b) Declining balance method
c) Units of production method
d) Sum-of-the-years-digits method
Answer: c) Units of production method
According to the Companies Act, 2013, which of the following assets is not considered for depreciation?
a) Leasehold land
b) Patents
c) Goodwill
d) Office equipment
Answer: c) Goodwill
Which section of the Income Tax Act, 1961 deals with depreciation?
a) Section 28
b) Section 32
c) Section 36
d) Section 40
Answer: b) Section 32
Under the Companies Act, 2013, what is the method used to calculate depreciation for buildings?
a) Straight-line method
b) Declining balance method
c) Units of production method
d) Annuity method
Answer: a) Straight-line method
What is the formula to calculate depreciation using the straight-line method?
a) (Cost of asset – Residual value) / Useful life
b) (Cost of asset × Residual value) / Useful life
c) Cost of asset / Useful life
d) Cost of asset – Residual value
Answer: a) (Cost of asset – Residual value) / Useful life
Which depreciation method results in higher depreciation charges in the earlier years of an asset’s life?
a) Straight-line method
b) Declining balance method
c) Sum-of-the-years-digits method
d) Units of production method
Answer: c) Sum-of-the-years-digits method
What is the main difference between depreciation under the Income Tax Act, 1961 and the Companies Act, 2013?
a) Rate of depreciation
b) Method of depreciation
c) Types of assets eligible for depreciation
d) All of the above
Answer: b) Method of depreciation
Which of the following assets is eligible for higher depreciation rates under the Income Tax Act, 1961, to encourage investment?
a) Land
b) Office equipment
c) Machinery
d) Buildings
Answer: c) Machinery
What is the purpose of charging depreciation in the financial statements of a company?
a) To reflect the decrease in market value of assets
b) To comply with regulatory requirements
c) To allocate the cost of assets over their useful lives
d) To increase the reported profits
Answer: c) To allocate the cost of assets over their useful lives
Which method of depreciation provides a higher charge in the earlier years of an asset’s life and is commonly used for tax purposes?
a) Straight-line method
b) Declining balance method
c) Sum-of-the-years-digits method
d) Units of production method
Answer: b) Declining balance method
Under the Income Tax Act, 1961, what is the depreciation rate for motor cars other than those used in a business of running them on hire?
a) 10%
b) 15%
c) 20%
d) 25%
Answer: d) 25%
Which depreciation method provides for an equal depreciation charge each year over the useful life of an asset?
a) Declining balance method
b) Sum-of-the-years-digits method
c) Units of production method
d) Straight-line method
Answer: d) Straight-line method
According to the Companies Act, 2013, where should the accumulated depreciation be reflected in the financial statements?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Notes to accounts
Answer: a) Balance sheet
Which of the following statements regarding depreciation is true?
a) It is an optional expense for companies.
b) It is a non-cash expense.
c) It increases the value of assets on the balance sheet.
d) It is recorded only at the time of sale of the asset.
Answer: b) It is a non-cash expense.
What is the depreciation rate for ships under the Income Tax Act, 1961?
a) 10%
b) 15%
c) 20%
d) 25%
Answer: c) 20%
Which of the following methods allocates a higher portion of an asset’s cost to the earlier years of its useful life?
a) Declining balance method
b) Sum-of-the-years-digits method
c) Straight-line method
d) Units of production method
Answer: a) Declining balance method
Which depreciation method is often used for assets like vehicles, where usage varies from year to year?
a) Straight-line method
b) Declining balance method
c) Sum-of-the-years-digits method
d) Units of production method
Answer: d) Units of production method
Which of the following assets is eligible for depreciation under both the Income Tax Act, 1961 and the Companies Act, 2013?
a) Land
b) Copyrights
c) Goodwill
d) Patents
Answer: b) Copyrights
What does the residual value of an asset represent?
a) The value of an asset at the beginning of its useful life
b) The value of an asset at the end of its useful life
c) The salvage value of an asset
d) The market value of an asset
Answer: c) The salvage value of an asset
Under the Income Tax Act, 1961, what is the maximum depreciation rate for tangible assets used in a business of generation or generation and distribution of power?
a) 30%
b) 40%
c) 50%
d) 60%
Answer: d) 60%
Which depreciation method allocates an equal amount of depreciation to each unit produced by an asset?
a) Straight-line method
b) Declining balance method
c) Units of production method
d) Annuity method
Answer: c) Units of production method
Which of the following is not considered an intangible asset under the Companies Act, 2013?
a) Patents
b) Copyrights
c) Machinery
d) Trademarks
Answer: c) Machinery
What is the primary reason for charging depreciation on fixed assets?
a) To reflect the market value of assets
b) To comply with accounting standards
c) To allocate the cost of assets over their useful lives
d) To increase the tax liability
Answer: c) To allocate the cost of assets over their useful lives
Under the Companies Act, 2013, what is the maximum percentage of depreciation that can be charged in any year?
a) 100%
b) 75%
c) 50%
d) 25%
Answer: a) 100%
Which of the following depreciation methods considers the time value of money?
a) Declining balance method
b) Straight-line method
c) Sum-of-the-years-digits method
d) Units of production method
Answer: c) Sum-of-the-years-digits method
Which section of the Income Tax Act, 1961 provides for additional depreciation on new machinery or plant?
a) Section 32
b) Section 35AD
c) Section 40A
d) Section 44AA
Answer: b) Section 35AD
Under the Companies Act, 2013, which of the following statements regarding depreciation is true?
a) Companies can choose any method of depreciation without restrictions.
b) Depreciation is charged based on the asset’s historical cost.
c) Depreciation rates are fixed by the Ministry of Finance.
d) Companies must review the residual value of assets annually.
Answer: d) Companies must review the residual value of assets annually.
Which of the following is true regarding depreciation under the Income Tax Act, 1961?
a) It is mandatory for all assets.
b) It is optional for small businesses.
c) It is applicable only to tangible assets.
d) It is not allowed for assets with a useful life of less than one year.
Answer: c) It is applicable only to tangible assets.
What is the primary factor influencing the choice of depreciation method?
a) Age of the asset
b) Salvage value of the asset
c) Useful life of the asset
d) Initial cost of the asset
Answer: c) Useful life of the asset
According to the Companies Act, 2013, which of the following assets should not be depreciated?
a) Leasehold land
b) Vehicles
c) Machinery
d) Copyrights
Answer: a) Leasehold land
Which depreciation method is also known as the “constant percentage method”?
a) Straight-line method
b) Declining balance method
c) Units of production method
d) Sum-of-the-years-digits method
Answer: b) Declining balance method
Under the Income Tax Act, 1961, which section provides for the depreciation of assets used for scientific research?
a) Section 35
b) Section 32
c) Section 40A
d) Section 44AD
Answer: a) Section 35
What is the term used to describe the difference between the cost of an asset and its accumulated depreciation?
a) Salvage value
b) Book value
c) Market value
d) Fair value
Answer: b) Book value
Which depreciation method is based on the assumption that the consumption of an asset’s services is more significant in the early years?
a) Straight-line method
b) Declining balance method
c) Sum-of-the-years-digits method
d) Units of production method
Answer: b) Declining balance method
What is the primary reason for differences in depreciation rates between the Income Tax Act, 1961 and the Companies Act, 2013?
a) Tax planning purposes
b) To align with international accounting standards
c) To encourage investment in specific sectors
d) Regulatory requirements
Answer: c) To encourage investment in specific sectors
Which depreciation method is considered the simplest and most commonly used?
a) Declining balance method
b) Sum-of-the-years-digits method
c) Units of production method
d) Straight-line method
Answer: d) Straight-line method
Under the Companies Act, 2013, how often should companies reassess the useful life of their assets?
a) Every year
b) Every two years
c) Every three years
d) Whenever there is a significant change in circumstances
Answer: d) Whenever there is a significant change in circumstances
