24 Questions
What is the basis for calculating depreciation and amortization according to IND AS 16?
Historical cost, useful life, and residual value
What is the purpose of revaluation of fixed assets as per IND AS 16?
To provide a more accurate representation of the asset's value
What are the two methods of depreciation calculation prescribed by the Companies Act 2013?
Straight-Line Method and Written Down Value Method
What factors are considered when estimating the useful life of an asset?
Technological obsolescence, physical wear and tear, and intended use
What happens to the depreciation and amortization calculations when a fixed asset is revalued?
The calculations are impacted, and the asset's value is updated
What is the purpose of the Straight-Line Method of depreciation?
To allocate the asset's cost systematically over its useful life
What is the basis for dividing 100% by the useful life of the asset in years in the Straight-Line Method?
To derive the annual depreciation rate
Under what circumstances can companies deviate from the prescribed useful lives?
When technically justified by evaluation
What is the maximum percentage of the original cost that salvage value can be?
5%
What is the purpose of breaking down fixed assets into sub-assets?
To allow for more accurate accounting and reporting
What is unique about land as a fixed asset?
It does not depreciate
What is the primary purpose of a Fixed Asset Register (FAR)?
To manage and record long-term assets
What is the shift-wise depreciation concept used for?
To allocate depreciation expenses based on the shifts or hours of usage
Which of the following information is NOT typically recorded in a Fixed Asset Register?
Sale proceeds
What is the purpose of estimating the useful life of an asset?
To calculate the depreciation expense
What is the purpose of reconciling the Depreciation Schedule with the General Ledger balances?
To verify that all fixed asset related transactions are properly accounted for
Which of the following is a common depreciation calculation method?
All of the above
Under IND AS guidelines, what is the relationship between salvage value and annual depreciation?
A higher salvage value results in lower annual depreciation
What is the purpose of estimating the useful life of a fixed asset?
To determine the depreciation rate
What is the benefit of using shift-wise depreciation concept?
It provides a more accurate allocation of depreciation expenses
What is the purpose of revaluating a fixed asset?
To reflect changes in the asset's market value
What is the term used to describe the estimated amount that a fixed asset can be sold for at the end of its useful life?
Salvage value
Which of the following is NOT a guideline for fixed asset valuation under IND AS 16?
Market value model
What is the primary purpose of maintaining an audit trail for fixed assets?
To provide supporting documentation for audit purposes
Study Notes
Fixed Assets and Depreciation
- Salvage value, also known as residual value, is the estimated amount a fixed asset can be sold for at the end of its useful life.
- Salvage value is considered when calculating the depreciable amount of an asset and is capped at 5% of the original cost.
Sub-Assets and Land Assets
- Fixed assets can be broken down into sub-components or sub-assets, each with their own useful life and depreciation rate.
- Land is a unique fixed asset that does not depreciate and is recorded at historical cost.
Depreciation Concepts
- Shift-wise depreciation concept is a method used to allocate depreciation expenses based on the shifts or hours an asset is used.
- Depreciation schedule is used to ensure accurate calculation and recording of depreciation for each fixed asset as per applicable accounting standards.
Fixed Asset Register (FAR)
- A fixed asset register is a comprehensive record of an organization's long-term assets.
- Information that can be recorded in FAR includes company code, asset code, sub-asset, asset description, capitalized on, currency, asset origin, asset group, depreciation category, and sub-category.
Fixed Asset Depreciation and Amortization as per IND AS 16
- Depreciation and amortization are calculated based on the historical cost, useful life, and residual value of the asset as per IND AS guidelines.
- IND AS allows for the revaluation of fixed assets, which can impact the depreciation and amortization calculations going forward.
Methodology for Calculation of Depreciation as per Sch II Part C of Companies Act 2013
- The Companies Act 2013 defines broad categories of fixed assets, such as buildings, plant and machinery, vehicles, and office equipment, each with a specific useful life and depreciation rate.
- The useful life of an asset is estimated based on factors like technological obsolescence, expected physical wear and tear, and the asset's intended use.
- Depreciation is calculated using the straight-line method and Written Down Value Method.
This quiz covers important terms related to fixed assets, including salvage value, in the context of accounting and the Companies Act.
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