Mastering Accountancy Basics

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Questions and Answers

Which of the following best describes the purpose of creating provisions and reserves?

To spread the cost of an expense over multiple accounting periods
To charge the entire cost of an expense in the year it is incurred
To ensure the correct amount of profit or loss is ascertained (correct)
To match revenue and expenses for a given period

What is the main subject matter of this chapter?

Charging depreciation (correct)
Creating provisions and reserves
Matching revenue and expenses
Amortisation and depletion

Why is it necessary to charge depreciation?

To charge the entire cost of an expense in the year it is incurred
To ensure the correct amount of profit or loss is ascertained (correct)
To match revenue and expenses for a given period
To spread the cost of an expense over multiple accounting periods

Which method can be used to compute depreciation?

<p>Straight line and written down value methods (B)</p> Signup and view all the answers

What is the purpose of spreading the cost of an expense over multiple accounting periods?

<p>To spread the benefits of the cost over the periods in which it provides benefits (C)</p> Signup and view all the answers

Flashcards

Depreciation

To accurately determine the profit or loss for a business, we need to account for the gradual decline in value of assets like machinery. This is done by charging depreciation.

Why is depreciation charged?

Depreciation is a way to spread the cost of an asset over its useful life.

Methods for Calculating Depreciation

The Straight Line Method: Every year, the cost is spread equally. The Written Down Value Method: Calculates depreciation on the diminishing value of the asset each year.