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11th Standard CBSE Accountancy Unit 6 Depreciation, Provisions and Reserves Book Back Questions

Published on: 04/09/2019

Depreciation, Provisions and Reserves

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Questions:

1 Marks

5 x 1 = 5

Is a reserve a charge to Profit & Loss Account?

Under which method depreciation is calculated on the written down value of the asset?

What is written down value method?

Which method of depreciation is recognised by Income Tax authorities in India?

Is depreciation cash expense?

Generic 4

2 x 4 = 8

Rajan purchased a machine on 1 October, 2017 for Rs. 500,000 plus CGST and SGST @ 6% each. He paid Rs. 20,000 for loading/unloading and carriage expenses to bring the machine to factory. He further incurred Rs. 25000 for installing the machine. Determine:
(i) How much amount did Rajan pay to vendor of machine?
(ii) How much amount will be debited to Machinery Account?
(iii) Pass the Journal Entries giving effect to the transection.

On April 1,2011 X Ltd. Purchased Machinery for Rs.1,00,000with CGST and SGST @ 6%each. The accounting year of the Company ends on 31st Dec. every year. Depreciation @ 10%p.a. on the initial cost is charged to P & L Account and credited to a separate account known as 'provision for depreciation' account. On 1st July 2013,the machine purchased on 1st April 2011was sold for Rs. 60,000.You are required to prepare machinery Account and Provision for Depreciation Account upto 2013.

Generic 6

3 x 6 = 18

From the following transactions of a business firm prepare Machinery Account for two years:
1.4.2011 purchased a second-hand machinery for Rs. 80,000.
1.4.2011 spent Rs.20,000 on repairs for making it serviceable.
30.9.2011 purchased another machinery for Rs. 40,000.
31.12.2011 repairs and renewals of machinery Rs. 5,000.
Depreciation is charged at 10% p.a. on fixed installment basis. The accounts are closed on 31^st March every year.

Green Ltd. purchased a machinery on 1st May, 2011 for Rs. 60,000. On 1st July, 2012 it purchased another machine for Rs. 20,000
On 31st March, 2013, it sold off the first machine purchased in 2011 for Rs.38,500 and on the same date purchased a new machinery for Rs.50,000. Depreciation is provided at 20% p.a. on the original cost each year. Accounts are closed each year on 31st December.
Show the Machinery Account for three years

10.

Ram Bros. acquired a machine on 1st July, 2014 at a cost of Rs1,40,000 with CGST and SGST @ 6% each and spent Rs 10,000 on its installation. The firm writes-off depreciation at 10% of the original cost every year. The books are dosed on 31st December every year. Show the Machinery Account and Depreciation Account for three years.

Generic 3

2 x 3 = 6

11.

Give four examples each of 'provisions' and 'Reserves'.

12.

Distinguish between 'Provision' and 'Reserve'.

True or False

4 x 1 = 4

13.

Depreciation is charged to reduce the value of asset to its market value.

(a)

True

(b)

False

14.

Depreciation provides fund for replacement.

(a)

True

(b)

False

15.

Depreciation must be charged so as to ascertain true profit or loss of the business.

(a)

True

(b)

False

16.

Depreciation is decline in the market value of tangible fixed assets.

(a)

True

(b)

False

Fill up / 1 Marks

2 x 1 = 2

17.

Installation, freight and transport expenses are a part of __________.

18.

Depreciation is decline in the value of ________.

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Answers Key:

1 Marks

5 x 1 = 5

()
No, reserve is an appropriation

()
Written down value method

()
Written down value method is a method under which depreciation goes on reducing year- after year.

()
Written down value method

()
No, depreciation is not a cash expense but non-cash expense.

Generic 4

2 x 4 = 8

(i) Amount paid to Vendor of Mach

	Rs
Value (cost)of Machine	5,00,000
Add:CGST @ 6%	30,000
SGST @ 6%	30,000
	5,60,000

(ii) Amount debited to Machinery Account:

Cost	5,00,000
Carriage expenses	20,000
Installation charges	25,000
	5,45,000

(iii)

Journal Entries
Date	Particulars	Amount Dr.(Rs)	Amount Cr.(Rs)
2017	Machinery A/C Dr	5,00,000
Oct 1	Input CGST A/C Dr	30,000
	Input SGST A/C Dr.	30,000
	To Bank A/C (Being Machinery purchased)		56,000
	Machinery A/c Dr.	45,000
	To Bank A/c (Being carriage and installation charges paid)		45,000

Dr. Machinery Account Cr.
Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs)
2011			2011
Apr.1	To Bank A/c	1,00,000	Dec. 31	By Balance c/d	1,00,000
		1,00,000			1,00,000
2012			2012
Jan 1	To Balance b/d	1,00,000	Dec 31	By Balance c/d	1,00,000
		1,00,000			1,00,000
2013			2013
Jan 1	To Balance b/d	1,00,000	July 1	To Bank A/c	60,000
			July 1	By Prov.for Dep.A/c	22,500
			July 1	By Loss on Sale	17,500

		1,00,000			1,00,000

Dr. Provision for Depreciation Account Cr.
Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs)
2011			2011
Dec 31	To Balance c/d	7,500	Dec 31	By Depreciation A/c	7,500
		7,500			7,500
2012			2012
Dec 31	To Balance b/d	17,500	Jan 1	By Balance b/d	7,500
			Dec 31	By Depreciation A/c	10,000
		17,500			17,500
2013			2013
Dec 31	To Balance c/d	22,500	Jan 1	By Balance b/d	17,000
			Jan 1	By Depreciation A/c	5,000
		22,500			22,500

Generic 6

3 x 6 = 18

In the Books of

Dr. Machinery Account Cr.
Date	Particulars	Amount(Rs)	Date	Particulars	Amount(Rs)
2011			2012
Apr 1	To Bank A/c(Cost) (Machine I)	80,000	Mar 31	By Depreciation A/c (On Machine I)	10,000
Apr 1	To Bank A/c (Repairs)	20,000	Mar 31	ByDepreciation A/c (On Machine II for 6 months)	2,000
2011
Sep.30	To Bank A/c (Cost) (Machine II)	40,000
			Mar 31	By Balance c/d:
				Machine I 90,000
				Machine II 38,000	1,28,000
		1,40,000			1,40,000
2012			2013
April 1	To Balance b/d	1,28,000	Mar 31	By Depreication A/c
				Machine I 10,000
				Machine II 4,000	14,000
			Mar 31	By Balance c/d:
				Machine I 80,000
				Machine II 34,000	1,14,000
		1,28,000			1,28,000

Working Notes:
1.Rs.1,00,000 \(\times\)10/100 = Rs.10,000
2.Rs.40,000 \(\times\) 10/100 = Rs.4,000
Note: Repair charges spent on 1.4.2011 for making the machinery serviceable is treated as capital expenditure and as such it has been recorded in Machinery Account.
Repairs charges of Rs. 5,000 has been spent on 31.12.2011 whereas the machinery was purchased on 30.9.2011. As such, this expenditure, being revenue in nature will not be recorded in Machinery A/c rather it will be debited to Profit & Loss A/c.

Dr. Machinery Account Cr.
Date	Particulars	Amount(Rs)	Date	Particulars	Amount(Rs)
2011			2011
May 1	To Bank A/c	60,000	Dec 31	By Depreciation A/c (for 8 months)	8,000
			Dec 31	By Balance c/d	52,000
		60,000			60,000
2012			2012
Jan 1	To Balance b/d	52,000	Dec 31	By Depreciation A/c (12,000+2,000)	14,000
July 1	To Bank A.c	20,000	Dec 31	By Balance c/d (40,000+18,000)	58,000
		72,000			72,000
2013			2013
Jan 1	To Balance b/d	58,000	Mar 31	By Bank A/c (Sale)	38,500
Mar 31	TO Bank A/c	50,000		By Depreciation A/c (for 3 months)	3,000
Mar 31	To Profit & Loss A/c (Profit on sale)	1,500	Dec 31	By Depreciation A/c (4,000+7,500)	11,500
			Dec 31	By Balance c/d	56,500
2014		1,09,500			1,09,500
Jan 1	To Balance b/d	56,500

10.

In the Books of Ram Bros

Dr. Machinery Account Cr.
Date	Particulars	J.F	Date	Particulars	Amount(Rs)
2014			2014
July 1	To Bank A/c	1,40,000	Dec 31	By Depreciation A/c	7,500
July 1	To Bank A/c (Installation Expenses)	10,0000	Dec 31	By Balance c/d	1,42,500
		1,50,000			1,50,000
2015			2015
Jan 1	To Balance b/d	1,42,500	Dec 31	By Depreciation A/c	15,000
			Dec 31	By Balance c/d	1,27,500
		1,42,500			1,42,500
2016			2016
Jan 1	To Balance b/d	1,27,500	Dec 31	By Depreciation A/c	15,000
			Dec 31	By Balance c/d	1,12,500
2017		1,27,500			1,27,500
Jan1	To Balance b/d	1,12,500

Dr. Depreciation Account Cr.
Date	Particulars	Amount(Rs)	Date	Particulars	Amount(Rs)
2014			2014
Dec 31	To Machinery A/c	7,500	Dec 31	By Profit & Loss A/c	7,500
		7,500			7,500
2015			2015
Dec 31	To Machinery A/c	15,000	Dec 31	By Profit & Loss A/c	15,000
		15,000			15,000
2016			2016
Dec 31	To Machinery A/c	15,000	Dec 31	By Profit & Loss A/c	15,000
		15,000			15,000

Generic 3

2 x 3 = 6

11.

Examples of provisions are:
(i) Provision for depreciation.
(ii) Provision for bad and doubtful debts.
(iii) Provision for taxation.
(iv) Provision for discount on debtors.
Examples of reserves are:
(i) General Reserve
(ii) Workmen Compensation Fund.
(iii) Investment Fluctuation Fund.
(iv) Capital Reserve.

12.

Difference between Provision and Reserve
Basis of Difference	Provision	Reserve
Meaning	It is created to meet the known liability	It is created to meet unknown liability
Nature	Provision is a charge against profit.	Reserve is an appropriation of profits
Purpose	It is created for a specific liability.	It is created for strengthening the financial position.
Mode of creation	It is created by debiting the Profit & Loss Account.	It is created by debiting the Profit & Loss Appropriation Account.
Use for payment of dividend	It cannot be used for payment of dividends	It can be used for payment of dividends
Creation	Creation of provision is compulsory. It is created even if there is no profit.	Creation of reserve depends on the discretion of the management. It is created only when there is profit.