Class 11 Accountancy - Chapter Depreciation, Provisions and Reserves NCERT Solutions | State briefly the need for providing dep
State briefly the need for providing depreciation.
Depreciation needs to be provided because an asset is bound to undergo wear and tear over a period of time. This reduces the working capacity and effectiveness of the asset. Hence, this should reflect the value of the asset, at which it is carried in the books of accounts.
1) For ascertaining the true profit or loss
2) For showing the true and fair view of the financial position
3) To ascertain the accurate cost of production
4) To provide funds for replacement of assets
5) To prevent the distribution of profits out of capital
6) For avoiding over payment of Income tax.
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:-
Give four examples each of ‘revenue reserve’ and ‘capital reserves’.
- Q:-
Give four examples each of ‘provision’ and ‘reserves’.
- Q:-
Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?
- 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.
- Q:-
Distinguish between ‘general reserve’ and ‘specific reserve’.
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