Question 1

Under the Written Down Value (WDV) method of depreciation, the amount of depreciation charged:

Fluctuates randomly.Increases every year.Decreases every year.Remains constant every year.

View Explanation

In WDV method, depreciation is calculated on the reducing balance of the asset. Since the book value decreases each year, the depreciation amount also decreases, which matches the higher repair costs in later years.

Question 2

According to AS 10 (Property, Plant and Equipment), when does the depreciation of an asset cease?

When it becomes idle or is retired from active use.When the financial year ends.When the market value increases.When the asset is fully depreciated or derecognized (sold/scrapped).

View Explanation

Depreciation does NOT cease when the asset becomes idle. It stops only when the asset's residual value equals its carrying amount, or it is derecognized.

Question 3

The term "Amortization" refers to writing off the value of:

Tangible Assets like Machinery.Current Assets like Stock.Wasting Assets like Mines.Intangible Assets like Goodwill/Patents.

View Explanation

Depreciation is for tangible assets. Amortization is for intangible assets. Depletion is for wasting assets (natural resources).

Question 4

In the Straight Line Method (SLM), the annual depreciation is calculated as:

(Cost + Scrap Value) / Useful Life(Market Value - Cost) / Useful Life(Cost - Scrap Value) / Useful LifeCost / Useful Life

View Explanation

Depreciation spreads the "depreciable amount" over the useful life. Depreciable amount is Cost minus Scrap (Salvage) Value.

Question 5

If an asset costing ?1,00,000 with accumulated depreciation of ?40,000 is sold for ?70,000, the result is:

Loss of ?10,000No Profit No LossProfit of ?30,000Profit of ?10,000

View Explanation

Book Value = Cost - Accumulated Depreciation = 1,00,000 - 40,000 = ?60,000. Sale Price = ?70,000. Profit = Sale Price - Book Value = 70,000 - 60,000 = ?10,000.

Question 6

Which of the following is NOT a factor in determining the amount of depreciation?

Market Price fluctuationHistorical CostEstimated Useful LifeEstimated Scrap Value

View Explanation

Depreciation allocation is based on Cost, Useful Life, and Scrap Value. It is a systematic allocation of cost, not a valuation process based on daily market price changes.

Question 7

In the "Sum of Years' Digits" (SYD) method, if the useful life is 3 years, the denominator for the fraction is:

5369

View Explanation

SYD = n(n+1)/2. For 3 years, 1+2+3 = 6. Depreciation fractions will be 3/6, 2/6, 1/6.

Question 8

A change in the method of depreciation (e.g., from SLM to WDV) is treated as:

A Change in Accounting Estimate.An Extraordinary Item.A Change in Accounting Policy.A Prior Period Error.

View Explanation

Under revised standards (Ind AS 8 / AS 10 Revised), a change in depreciation method is considered a "Change in Accounting Estimate" and is applied prospectively (for future periods), not retrospectively.

Question 9

The "Sinking Fund Method" of depreciation ensures that:

Depreciation is charged equally.Tax is minimized.Funds are available for the replacement of the asset at the end of its life.The asset is revalued daily.

View Explanation

In this method, the depreciation amount is invested in outside securities. The interest earned and the annual provisions accumulate to provide enough cash to replace the asset when it is scrapped.

Question 10

"Useful Life" of an asset is:

The legal life of the asset.The physical life of the asset.10 years for all assets.The period over which the asset is expected to be available for use by the enterprise.

View Explanation

Useful life is an economic estimate, not necessarily physical life. A computer may work for 10 years (physical) but be useful to a tech company for only 3 years (economic).

Question 11

Obsolescence refers to a decrease in the value of an asset due to:

Passage of time.Physical usage.Wear and tear.Technological changes or improvements.

View Explanation

Obsolescence is a functional loss of value. Even if a machine is physically perfect, it may become obsolete if a newer, more efficient machine enters the market.

Question 12

Profit on sale of a fixed asset is transferred to:

Asset AccountDepreciation AccountCapital ReserveProfit & Loss Account

View Explanation

Profit on sale is an operating gain (or non-operating depending on view, but revenue nature) and is credited to the P&L Account.

Question 13

The "Revaluation Method" of depreciation is most suitable for:

Plant and MachineryPatentsLoose Tools and LivestockLand and Building

View Explanation

For small items like tools where individual tracking is hard, they are revalued at year-end, and the difference is treated as depreciation.

Question 14

If the estimated useful life of an asset is revised, the unamortized depreciable amount should be charged to revenue:

Immediately in the current year.Over the original life.Retrospectively from the date of purchase.Over the remaining useful life.

View Explanation

A change in useful life is a Change in Accounting Estimate (AS 10). The effect is prospective, spreading the remaining book value over the new remaining life.

Question 15

Under the "Unit of Production" method, depreciation is based on:

Replacement cost.Market value.Usage or Output.Time elapsed.

View Explanation

Depreciation = (Cost - Scrap) * (Units produced in the year / Total estimated life units). It links expense to actual usage.

Question 16

If an asset is sold, the Profit or Loss on sale is calculated by comparing the Sale Price with:

Market Value.Scrap Value.Book Value (Written Down Value) on the date of sale.Original Cost.

View Explanation

Profit/Loss = Net Sale Proceeds - Book Value on date of sale. Comparing with Original Cost is incorrect because depreciation has reduced the asset's value over time.

Question 17

Calculate the first year depreciation for an asset costing ?15,000 with a life of 5 years using "Sum of Years' Digits" (SYD) method. (Scrap value = 0).

?3,000?1,000?5,000?4,000

View Explanation

Sum of digits = 1+2+3+4+5 = 15. For Year 1, remaining life is 5. Fraction = 5/15 = 1/3. Depreciation = 15,000 * 1/3 = ?5,000.

JAIIB Quiz

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