On this page you will find few practice question in Accounting (Depreciation) which will enhance your preparation for the forthcoming GCE Exam.
TOPIC: DEPRECIATION
Watch the video tutorial below, for detailed explanation of Depreciation, then answer the questions that follows, below the video.
The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life. Depreciation represents how much of an asset’s value has been used. It allows companies to earn revenue from the assets they own by paying for them over a certain period of time.
In depreciation, there is no cash outflow. Instead, while accounting, this expense is transferred to the accumulated depreciation. It is an essential part of accounting that facilitates companies to record the real-time book value of tangible assets. Also, this sum can be used for purchasing a new asset in the future.
Types of Depreciation Methods
1. Straight-Line Depreciation Method
Straight-line depreciation is a very common, and the simplest, method of calculating depreciation expense. In straight-line depreciation, the expense amount is the same every year over the useful life of the asset.
Depreciation Formula for the Straight Line Method:
Depreciation Expense = (Cost – Salvage value) / Useful life
2. Double Declining Balance Depreciation Method
Compared to other depreciation methods, double-declining-balance depreciation results in a larger amount expensed in the earlier years as opposed to the later years of an asset’s useful life. The method reflects the fact that assets are typically more productive in their early years than in their later years – also, the practical fact that any asset (think of buying a car) loses more of its value in the first few years of its use. With the double-declining-balance method, the depreciation factor is 2x that of the straight-line expense method.
Depreciation formula for the double-declining balance method:
Periodic Depreciation Expense = Beginning book value x Rate of depreciation
3. Units of Production Depreciation Method
The units-of-production depreciation method depreciates assets based on the total number of hours used or the total number of units to be produced by using the asset, over its useful life.
The formula for the units-of-production method:
Depreciation Expense = (Number of units produced / Life in number of units) x (Cost – Salvage value)
4. Sum-of-the-Years-Digits Depreciation Method
The sum-of-the-years-digits method is one of the accelerated depreciation methods. A higher expense is incurred in the early years and a lower expense in the latter years of the asset’s useful life.
In the sum-of-the-years digits depreciation method, the remaining life of an asset is divided by the sum of the years and then multiplied by the depreciating base to determine the depreciation expense.
The depreciation formula for the sum-of-the-years-digits method:
Depreciation Expense = (Remaining life / Sum of the years digits) x (Cost – Salvage value)
ACCOUNTING: WAEC GCE PRACTICE QUESTIONS
NOTE: TYPE YOUR ANSWERS INTO THE COMMENT BOX BELOW THESE QUESTIONS, THE CORRECTIONS WILL BE POSTED SOON
1. Where there is provision for depreciation, fixed asset is shown in the balance sheet at
i. cost less depreciation for the period only.
ii. cost less total depreciation to date.
iii. written down values
- A. i only
- B. ii only
- C. i and ii only
- D. i and iii only
2. An effect of increase in the provision for depreciation is
- A. decrease in gross profit
- B. increase in net profit
- C. increase in gross profit
- D. decrease in net profit
3. Use the following information to answer this question.
Acquisition cost of computers – Le 80,000
Installation cost – Le 20,000
Estimated residual value – Le 4,000
Estimated useful life – 5 years.
The depreciable value of computers is
- A. Le 80,000
- B. Le 96,000
- C. Le 100,000
- D. Le 104,000
4. An asset was bought on 1st January, 1992 for ₦20,000. Depreciation was provided for annually at 20% on cost. It was sold for ₦7,000 on 1st July, 1995.The profit on sale was
Options
A) ₦8.00
B) ₦7,000
C) ₦6,000
D) ₦5,000
E) ₦1,000
5. The factor that determine the periodic depreciation charge are?
Options
A) asset cost, market value and useful life
B) asset cost, market value and residusl value
C) asset value, cash value useful life
D) asset cost, salvage and useful life
6. Reducing balance method charges depreciation as fixed percentage of the
A. net book value of asset
B. cost of asset
C. market value of asset
D. accumulated depreciation on asset
7. In the balance sheet, the balance on the provision for Depreciation Account shown as
- A. addition to fixed assets
- B. deduction from fixed assets
- C. addition to capital
- D. duduction from current liabilies
8. A plant which costs N1,000 and has a residual value of N125 is depreciated at 20% per annum. Using the straight-line method, what is the depreciation charge for the second year?
- A. N128
- B. N140
- C. N160
- D. N175
- E. N200
9. A plant which costs N1,000 and has a residual value of N125 is depreciated at 20% per annum. Using the diminishing balance, what is the net book value at the second year?
- A. N512
- B. N525
- C. N640
- D. N700
- E. N800
TYPE YOUR ANSWERS INTO THE COMMENT BOX BELOW, THE CORRECTIONS WILL BE POSTED SOON.
