Page 255 - DMGT104_FINANCIAL_ACCOUNTING

Unit 10: Accounting and Depreciation for Fixed Assets

3. When the goodwill of the business is shown in the books? Should it be retained in the Notes
business? Explain.
4. What are the bases for the valuation of tangible fixed assets? Explain.

5. Explain the principles of valuation of intangible assets.
6. What information are disclosed in the financial statements regarding the valuation of
fixed assets? Explain.

7. Explain the significance of depreciation? What factors should be kept in mind for
determining the amount of depreciation?
8. What are the different methods of providing depreciation? Explain any three of them.

9. Differentiate between ‘Fixed Installment Method’ and ‘Written Down Value Method’.
10. Define depreciation as per Accounting Standard VI? Explain the need and significance of
providing depreciation.

11. Define depreciation.
12. What are the factors effecting depreciation?
13. State the meaning of reserves. Explain the different types of reserves.
14. Distinguish between:

(i) Provision and Reserve
(ii) Capital Reserve and Revenue Reserve
15. On 1st April 2005, Arjun Co. Ltd. purchased a plant costing 4,50,000 and spent 30,000 on
its erection. The estimated effective life of the plant is 4 years with scrape value of 80,000.
Calculate depreciation on the straight line method and show plant account of 4 years if:
(i) Provision for depreciation is not maintained.

(ii) Provision for depreciation is maintained.
16. On 1st January 2004, Arora & Company purchased second hand machinery for 1,85,000
and spent 10,000 on repair and 5,000 on installation. On 1st July, 2005 the company
purchased second hand machinery for 50,000. On 1st July 2006 the machinery purchased
on 1st January 2004, was sold for 1,40,000 and on the same date a fresh machine is
purchased for 1,25,000. On 1st July, 2007 the machinery purchased for 50,000 on 1st July
2005 was sold for 10,000.

17. In 2004, depreciation was charged @10% on original cost, however, in 2005 the company
decided to write-off depreciation @15% on written-down value method. Show the machinery
account for 4 years.
18. Mr. Akshey took a lease for 5 years for 30,000. He decided to write off lease by annuity
method presuming the rate of interest at 5% p.a. the annuity table shows that annual
amount necessary to write off 1 in five years at 5% p.a. is 0.230975. Prepare the lease
account for 5 years.

19. On 1st January, 2005, Mr. Aditya Raj purchased a three years lease of premises for
1,50,000 and it is decided to make provision for replacement of the losses by means of a
depreciation fund. The expected rate of interest on investment is 5% p.a. The sinking fund
table shows that 0.317208 at 5% p.a. will in 3 years accumulate 1. Show the journal
entries and necessary accounts.

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