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.
Straight Line Method : In a straight line method of depreciation a fixed and an equal amount is charged as depreciation in every accounting period during the lifetime of an asset. The amount annually charged as depreciation is such that it reduces the original cost of the asset to its scrap value, at the end of its useful life. In this case, depreciation amount is also calculated by dividing depreciable cost by the estimated life of the assets. It is also a Fixed installment method because the amount of depreciation remains constant from year to year over the useful life of the asset.
Written Down Value Method : In written down value method, the depreciation is calculated at a fixed percentage of written down value of the asset. The method assumes that the benefit acquired to business by utilization of assets keeps on decreasing as the asset gets old. As the value of assets goes on decreasing from year to year, the amount of depreciation charged to different accounting years decreases with the passage of time.
Distinguish between Straight Line Method and Written Down Value Method:
Straight Line Method | Written Down Value Method |
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Suitability of Straight Line Method & Written Down Value Method:
State whether the following statements are true or false:
State briefly the need for providing depreciation.
Give four examples each of ‘revenue reserve’ and ‘capital reserves’.
Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?
Give four examples each of ‘provision’ and ‘reserves’.
Name and explain different types of reserves in detail.
What are the effects of depreciation on profit and loss account and balance sheet?
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.
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:
Distinguish between ‘general reserve’ and ‘specific reserve’.
Name any two types of commonly used negotiable instruments.
Why is it necessary to record the adjusting entries in the preparation of final accounts?
State the meaning of incomplete records?
Briefly state how the cash book is both journal and a ledger.
State the meaning of a trial balance?
State the four basic requirements of a database applications.
Define accounting.
State the different elements of a computer system.
Why is it necessary for accountants to assume that business entity will remain a going concern?
State the need for the preparation of bank reconciliation statement?
As an accountant of a company, you are disappointed to learn that the totals in your new trial balance are not equal. After going through a careful analysis, you have discovered only one error. Specifically, the balance of the Office Equipment account has a debit balance of 15,600 on the trial balance. However, you have figured out that a correctly recorded credit purchase of pendrive for 3,500 was posted from the journal to the ledger with a 3,500 debit to Office Equipment and another 3,500 debit to creditors accounts. Answer each of the following questions and present the amount of any misstatement :
(a) Is the balance of the office equipment account overstated, understated, or correctly stated in the trial balance?
(b) Is the balance of the creditors account overstated, understated, or correctly stated in the trial balance?
(c) Is the debit column total of the trial balance overstated, understated, or correclty stated?
(d) Is the credit column total of the trial balance overstated, understated, or correctly stated?
(e) If the debit column total of the trial balance is 2,40,000 before correcting the error, what is the total of credit column.
Voucher is prepared from:
(i) Documentary evidence
(ii) Journal entry
(iii) Ledger account
(iv) All of the above
Which of the following is not an error of commission:
(a) Overcasting of sales book.
(b) Credit sales to Ramesh 5,000 credited to his account.
(c) Wrong balancing of machinery account.
(d) Cash sales not recorded in cash book.
Define revenues and expenses?
Write the process of preparing ledger from a journal.
What are the methods of preparing trial balance?
Briefly state how the cash book is both journal and a ledger.
When information about two different enterprises have been prepared presented in a similar manner the information exhibits the characteristic of :
(a) Verifiability
(b) Relevance
(c) Reliability
(d) None of the above
Complete the following sentences with appropriate words:
(a) Information in financial reports is based on .....................
(b) Internal users are the ..................... of the business entity.
(c) A ..................... would most likely use an entities financial report to determine whether or not the business entity is eligible for a loan.
(d) The Internet has assisted in decreasing the ..................... in issuing financial reports to users.
(e) ..................... users are groups outside the business entity, who uses the information to make decisions about the business entity.
(f) Information is said to be relevent if it is ......................
(g) The process of accounting starts with ............ and ends with ............
(h) Accounting measures the business transactions in terms of ............ units.
(i) Identified and measured economic events should be recording in ............ order.
Explain briefly the purpose and advantages of maintaining of a Bills Receivable Book.