Accounting Quiz

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Questions and Answers

What is the Units of Production method used for?

To ignore the cost of a non-current asset

To calculate the total production units of a non-current asset

To spread out the cost of a non-current asset over its useful life based on its use (correct)

To calculate the total cost of a non-current asset

What is the end-of-year basis for calculating depreciation provisions?

We calculate depreciation on a monthly basis

We calculate a full period’s depreciation on the assets in use at the start of the period

We calculate a full period’s depreciation on the assets in use at the end of the period (correct)

We ignore the dates during the year when the assets were bought or sold

How is the provision for depreciation made on a month-to-month basis?

One year's ownership, one year's provision

One day's ownership, one day's provision

One week's ownership, one week's provision

One month's ownership, one month's provision (correct)

What types of accounts are maintained when recording depreciation in the books of accounts?

Depreciation expense account and allowance for depreciation account Signup and view all the answers

What is depreciation?

The reduction in the value of non-current assets over time Signup and view all the answers

What are non-current assets?

Assets that are expected to be used up over a period of more than a year Signup and view all the answers

What is the purpose of recording depreciation in the books of accounts?

To accurately reflect the decrease in the value of non-current assets over time Signup and view all the answers

What are the three methods of calculating and recording depreciation?

Straight-line, reducing balance, and units of production Signup and view all the answers

What is the net asset value of an asset?

The current market value of the asset Signup and view all the answers

What is revenue expenditure?

Expenditure on items that contribute to the revenue-earning capacities of a business and is expensed off immediately to match the revenues of the same accounting period. Signup and view all the answers

What is capital expenditure?

Expenditure on items that contribute to the revenue-earning capacities of a business, but the items are expected to contribute for more than one accounting period. Signup and view all the answers

What are the three factors that determine the rate of depreciation?

The cost of the non-current asset, the useful economic life, and the estimated residual value/scrap value/disposal value at the end of the asset’s useful life. Signup and view all the answers

What is the straight-line method of depreciation?

Based on the cost of the non-current asset less the residual value, spread evenly over the useful economic life of the asset. The amount of depreciation charged in each period is the same. Signup and view all the answers

What is the reducing balance method of depreciation?

Based on the carrying value of the asset at the beginning of the financial period. The amount of depreciation charged every period gradually decreases. Signup and view all the answers

What is the accounting concept that states that only activities that can be measured in terms of money should be recorded in the accounting books?

The Money Measurement Concept Signup and view all the answers

What is the accounting concept that stipulates that all assets must be recorded at the 'original cost' and not the assets' current market value?

The Historical Cost Concept Signup and view all the answers

What is the accounting concept that means that it is quantifiable and can easily be measured, making it more agreeable to different parties?

The Objectivity Concept Signup and view all the answers

Study Notes

Depreciation

Depreciation is the systematic allocation of the cost of a tangible non-current asset over its useful life.
Depreciation is an accounting method used to reflect the decrease in value of an asset over its useful life.
It is an expense, not a valuation.
Non-current assets are assets that a business intends to hold for more than one year.
Revenue expenditure is expenditure incurred on the day to day running of a business.
Capital expenditure is expenditure that is incurred when purchasing new assets.
Net asset value of an asset is the cost of the asset less the accumulated depreciation on that asset.

Accounting Concept

Objectivity, which states that only activities that can be measured in terms of money should be recorded in the accounting books.
Historical cost, which stipulates that all assets must be recorded at the ‘original cost’ and not the assets' current market value.
Measurability, which means that items should be quantifiable and can easily be measured.

Methods of Calculating Depreciation

Straight-line method is a method of allocating the cost of an asset evenly over its useful life.
The reducing balance method is a method of allocating the cost of an asset at a decreasing rate over its useful life.

Recording Depreciation

The Units of Production method allocates the cost of an asset based on the number of units produced.
End-of-year basis for calculating depreciation provisions is calculated at the end of the financial year.
Month-to-month basis provision for depreciation is calculated over the course of the month.
The following types of accounts are used when recording depreciation:
- Depreciation expense account: This account is credited to record depreciation expense.
- Accumulated depreciation account: This account is debited to record the accumulated depreciation.

Factors Determining Depreciation Rate

The three factors that determine the rate of depreciation are:
- The cost of the asset
- The estimated useful life of the asset
- The estimated residual value of the asset.

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Description

Test your understanding of revenue and capital expenditure, depreciation, and asset valuation with this quiz. Challenge yourself to calculate and record depreciation using different methods and brush up on key accounting concepts. Perfect for students and professionals alike!