13 Questions
What is depreciation?
The reduction in the value of an asset over time
What are the causes of depreciation?
Wear and tear, obsolescence, and usage
What is capital?
Long-term funding for a business
Why is a balance sheet prepared?
To show the true financial position of a company
What is the need for depreciation?
To ascertain the correct profit and show the true financial position
What is a non-trading concern?
A non-profit organization with charitable or educational goals
What is the purpose of preparing an income & expenditure account?
To determine surplus or deficit of income over expenditures for a particular time frame
What does a subscription refer to?
An advance prepayment by a customer for future goods or services
What is the retirement of a partner in a business?
Every partner's right to retire from the firm as and when they desire
What is the main characteristic of a private company?
Privately-owned organization with shares not publicly traded, making them unavailable for the general public to purchase on stock exchanges
What is the meaning of goodwill in business?
An intangible asset that represents the positive reputation
What is involved in a hire purchase system?
Rent-to-own; ownership after completing payments; risk of repossession if payments are missed
What does the admission of a partner mean in a partnership business?
The process of adding a new member to a partnership, typically requiring the agreement of all existing partners
Study Notes
Depreciation
- Depreciation is the decrease in value of an asset over time due to wear and tear, obsolescence, or other factors.
- Causes of depreciation include physical deterioration, functional obsolescence, and external factors such as changes in market conditions.
Capital
- Capital refers to the owner's investment in a business, representing the business's net worth.
Balance Sheet
- A balance sheet is prepared to provide a snapshot of a company's financial position at a specific point in time.
- The balance sheet presents the company's assets, liabilities, and equity in a structured format.
Need for Depreciation
- Depreciation is necessary to accurately reflect the decreasing value of assets over time, ensuring that financial statements accurately represent the company's financial position.
Non-Trading Concern
- A non-trading concern is an organization that does not engage in profit-oriented activities, such as a club or charity.
Income and Expenditure Account
- An income and expenditure account is prepared to record and classify revenues and expenses of a non-trading concern.
- The purpose of this account is to provide a clear picture of the organization's financial performance over a specific period.
Subscription
- A subscription refers to a regular payment made by members of a non-trading concern, such as a club or charity, to support its activities.
Retirement of a Partner
- The retirement of a partner in a business occurs when one partner leaves the partnership, and their share of the business is taken over by the remaining partners.
Admission of a Partner
- The admission of a partner in a partnership business refers to the inclusion of a new partner into the existing partnership.
Private Company
- A private company is characterized by limited liability, and its ownership is restricted to its members.
Goodwill
- Goodwill in business represents the excess value of a business over its net tangible assets, often resulting from factors like reputation, customer loyalty, and brand recognition.
Hire Purchase System
- A hire purchase system is a financing arrangement where a buyer pays for a product in installments, taking possession of the product while making payments.
Prepare for your Accountancy-II VIVA with this set of questions and answers covering topics such as depreciation, its causes, and related formulas. Test your knowledge and be ready for your upcoming VIVA examination.
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