MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO FIXED ASSETS AND DEPRECIATION

Which of the following is considered a fixed asset?
a) Inventory
b) Land
c) Accounts receivable
d) Marketable securities
Answer: b) Land

Depreciation is the process of:
a) Increasing the value of assets over time
b) Reducing the value of liabilities over time
c) Allocating the cost of tangible assets over their useful life
d) Calculating the market value of assets
Answer: c) Allocating the cost of tangible assets over their useful life

Which method of depreciation allocates an equal amount of depreciation expense each year?
a) Straight-line method
b) Double-declining balance method
c) Units of production method
d) Sum-of-the-years’-digits method
Answer: a) Straight-line method

In India, the Companies Act, 2013, prescribes the maximum useful life of an asset for the purpose of depreciation as:
a) 10 years
b) 15 years
c) 20 years
d) No specific limit
Answer: d) No specific limit

Which of the following is NOT a method of depreciation allowed under Indian accounting standards?
a) Written down value method
b) Sinking fund method
c) Annuity method
d) Production unit method
Answer: c) Annuity method

The salvage value of an asset is:
a) Its original cost
b) Its residual value at the end of its useful life
c) Its market value at the time of purchase
d) Its value after applying depreciation
Answer: b) Its residual value at the end of its useful life

Which depreciation method is commonly used for tax purposes in India?
a) Straight-line method
b) Double-declining balance method
c) Written down value method
d) Sum-of-the-years’-digits method
Answer: c) Written down value method

Depreciation expense is recorded in which of the following financial statements?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Statement of changes in equity
Answer: b) Income statement

Which of the following factors does NOT affect the calculation of depreciation expense?
a) Salvage value
b) Useful life
c) Market value
d) Depreciation method
Answer: c) Market value

Which regulatory body in India governs the accounting standards related to fixed assets and depreciation?
a) Institute of Chartered Accountants of India (ICAI)
b) Securities and Exchange Board of India (SEBI)
c) Reserve Bank of India (RBI)
d) Ministry of Corporate Affairs (MCA)
Answer: d) Ministry of Corporate Affairs (MCA)

Which of the following is NOT a tangible fixed asset?
a) Machinery
b) Patents
c) Buildings
d) Furniture
Answer: b) Patents

Which depreciation method is based on the assumption that the asset’s economic benefits are derived evenly over its useful life?
a) Sum-of-the-years’-digits method
b) Double-declining balance method
c) Straight-line method
d) Units of production method
Answer: c) Straight-line method

What is the formula for calculating annual depreciation using the straight-line method?
a) (Cost of asset – Salvage value) / Useful life
b) (Cost of asset * Salvage value) / Useful life
c) (Cost of asset * Useful life) / Salvage value
d) (Cost of asset + Salvage value) * Useful life
Answer: a) (Cost of asset – Salvage value) / Useful life

Which accounting principle requires the use of the same depreciation method consistently for all fixed assets of similar nature and use?
a) Consistency principle
b) Materiality principle
c) Matching principle
d) Conservatism principle
Answer: a) Consistency principle

Under the written down value method, depreciation is calculated as a percentage of:
a) The original cost of the asset
b) The net book value of the asset at the beginning of the year
c) The market value of the asset at the end of its useful life
d) The salvage value of the asset
Answer: b) The net book value of the asset at the beginning of the year

Which depreciation method typically results in higher depreciation expense in the earlier years of an asset’s life?
a) Straight-line method
b) Double-declining balance method
c) Sum-of-the-years’-digits method
d) Units of production method
Answer: b) Double-declining balance method

Which financial statement reflects the carrying amount of fixed assets after accounting for accumulated depreciation?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Statement of changes in equity
Answer: b) Balance sheet

Which of the following assets is generally NOT subject to depreciation?
a) Land
b) Buildings
c) Machinery
d) Goodwill
Answer: a) Land

Which regulatory body sets the accounting standards for non-corporate entities in India?
a) Reserve Bank of India (RBI)
b) Ministry of Corporate Affairs (MCA)
c) Institute of Chartered Accountants of India (ICAI)
d) Securities and Exchange Board of India (SEBI)
Answer: c) Institute of Chartered Accountants of India (ICAI)

What is the main purpose of charging depreciation on fixed assets?
a) To reflect changes in market value
b) To allocate the cost of assets over their useful lives
c) To increase the reported profit
d) To comply with tax regulations
Answer: b) To allocate the cost of assets over their useful lives

Which depreciation method considers the number of units produced or hours worked by the asset to calculate depreciation?
a) Straight-line method
b) Double-declining balance method
c) Units of production method
d) Sum-of-the-years’-digits method
Answer: c) Units of production method

Which of the following factors affects the calculation of depreciation under the units of production method?
a) Salvage value
b) Useful life
c) Market value
d) Production activity
Answer: d) Production activity

Which depreciation method is more commonly used for assets with irregular patterns of use or obsolescence?
a) Straight-line method
b) Double-declining balance method
c) Sum-of-the-years’-digits method
d) Units of production method
Answer: a) Straight-line method

Which financial statement would be most affected by an error in the calculation of depreciation expense?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Statement of changes in equity
Answer: b) Income statement

Which depreciation method allocates a higher portion of the asset’s cost to the earlier years of its useful life?
a) Straight-line method
b) Double-declining balance method
c) Sum-of-the-years’-digits method
d) Units of production method
Answer: b) Double-declining balance method

Which of the following is NOT a method to calculate depreciation for tax purposes in India?
a) Straight-line method
b) Written down value method
c) Units of production method
d) Annuity method
Answer: d) Annuity method

What is the minimum useful life of an asset as per Indian accounting standards?
a) 3 years
b) 5 years
c) 7 years
d) There is no minimum specified
Answer: d) There is no minimum specified

Which depreciation method is commonly used for assets subject to rapid technological advancements?
a) Straight-line method
b) Double-declining balance method
c) Units of production method
d) Sum-of-the-years’-digits method
Answer: b) Double-declining balance method

Which of the following is NOT a reason for depreciating fixed assets?
a) To reflect the wear and tear over time
b) To allocate the cost of assets over their useful lives
c) To increase the market value of assets
d) To comply with accounting principles and regulations
Answer: c) To increase the market value of assets

Which regulatory body in India oversees the enforcement of accounting standards for listed companies?
a) Reserve Bank of India (RBI)
b) Ministry of Corporate Affairs (MCA)
c) Institute of Chartered Accountants of India (ICAI)
d) Securities and Exchange Board of India (SEBI)
Answer: d) Securities and Exchange Board of India (SEBI)

Which of the following is NOT considered a method of depreciation under Indian accounting standards?
a) Declining balance method
b) Sinking fund method
c) Revaluation method
d) Sum-of-the-years’-digits method
Answer: c) Revaluation method

Under the declining balance method, depreciation is calculated as a percentage of the:
a) Original cost of the asset
b) Net book value of the asset at the end of its useful life
c) Written down value of the asset at the beginning of the year
d) Salvage value of the asset
Answer: c) Written down value of the asset at the beginning of the year

Which depreciation method is based on the assumption that the asset’s economic benefits are consumed in proportion to the units produced or hours worked?
a) Straight-line method
b) Units of production method
c) Double-declining balance method
d) Annuity method
Answer: b) Units of production method

Which financial statement reflects the change in the carrying amount of fixed assets from the beginning to the end of an accounting period?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Statement of changes in equity
Answer: b) Balance sheet

What is the formula for calculating depreciation expense using the declining balance method?
a) (Cost of asset – Salvage value) / Useful life
b) (Cost of asset * Rate of depreciation)
c) (Cost of asset * Useful life) / Salvage value
d) (Cost of asset + Salvage value) * Rate of depreciation
Answer: b) (Cost of asset * Rate of depreciation)

Which of the following factors is NOT considered in determining the useful life of an asset for depreciation purposes?
a) Physical wear and tear
b) Technological obsolescence
c) Salvage value
d) Legal or contractual limits
Answer: c) Salvage value

Which depreciation method is required to be used for assets held for revaluation in India?
a) Straight-line method
b) Double-declining balance method
c) Revaluation method
d) Written down value method
Answer: d) Written down value method

Which of the following assets is NOT subject to depreciation under Indian accounting standards?
a) Plant and machinery
b) Buildings
c) Goodwill
d) Furniture and fixtures
Answer: c) Goodwill

Which financial statement reflects the total depreciation expense for an accounting period?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Statement of changes in equity
Answer: a) Income statement

Which depreciation method is based on the assumption that the asset’s economic benefits are consumed at a constant rate over its useful life?
a) Straight-line method
b) Units of production method
c) Double-declining balance method
d) Sum-of-the-years’-digits method
Answer: a) Straight-line method

Which regulatory body in India is responsible for setting accounting standards for banks and financial institutions?
a) Reserve Bank of India (RBI)
b) Ministry of Corporate Affairs (MCA)
c) Institute of Chartered Accountants of India (ICAI)
d) Securities and Exchange Board of India (SEBI)
Answer: a) Reserve Bank of India (RBI)

Which of the following methods results in a higher depreciation expense in the earlier years of an asset’s life compared to the straight-line method?
a) Units of production method
b) Sum-of-the-years’-digits method
c) Written down value method
d) Double-declining balance method
Answer: d) Double-declining balance method

Which depreciation method allocates a decreasing amount of depreciation expense each year?
a) Straight-line method
b) Units of production method
c) Sum-of-the-years’-digits method
d) Declining balance method
Answer: d) Declining balance method

Which of the following depreciation methods is NOT commonly used for financial reporting purposes in India?
a) Written down value method
b) Annuity method
c) Straight-line method
d) Sum-of-the-years’-digits method
Answer: b) Annuity method

Which regulatory body in India is responsible for regulating the accounting profession and ensuring compliance with accounting standards?
a) Reserve Bank of India (RBI)
b) Ministry of Corporate Affairs (MCA)
c) Institute of Chartered Accountants of India (ICAI)
d) Securities and Exchange Board of India (SEBI)
Answer: c) Institute of Chartered Accountants of India (ICAI)

Which depreciation method is based on the assumption that the asset’s economic benefits are consumed in proportion to the units of production or hours worked?
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 financial statement reflects the change in cash flows due to the acquisition or disposal of fixed assets?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Statement of changes in equity
Answer: c) Cash flow statement

Which of the following is NOT a factor that affects the calculation of depreciation expense?
a) Salvage value
b) Useful life
c) Market value
d) Depreciation method
Answer: c) Market value

Which regulatory body in India sets accounting standards for insurance companies?
a) Reserve Bank of India (RBI)
b) Ministry of Corporate Affairs (MCA)
c) Institute of Chartered Accountants of India (ICAI)
d) Insurance Regulatory and Development Authority of India (IRDAI)
Answer: d) Insurance Regulatory and Development Authority of India (IRDAI)

Which depreciation method is based on the assumption that the asset’s economic benefits are consumed more rapidly in the early years of its useful life?
a) Straight-line method
b) Units of production method
c) Declining balance method
d) Sum-of-the-years’-digits method
Answer: c) Declining balance method