Depreciation & Adjustment MCQs

By: Prof. Dr. Fazal Rehman | Last updated: May 21, 2025

1. : A fixed asset cost $12,000 and sold for $5,000. At the date of disposal, its net book value is $2,000. What is the profit or loss on disposal of this fixed asset?
(A) $2,000 (loss)
(B) $3,000 (loss)
(C) $2,000 (profit)
(D) $3,000 (profit)

2. : A machine which was bought for $189,000 on 30 April 2014. The residual value was $5,000 and downgrading rate was 25%. Devaluation is to be charged under the reducing balance method month to month basis. Compute reduction at 31 December 2014:
(A) $15,000
(B) $18,000
(C) $19,000
(D) $30,000

3. : Company XYZ uses the straight line method of depreciation for all its fixed possessions. On 1 January, it bought a machine on hire purchase. The cash price was $150,000 and the interest for the year is $16,506. The projected useful life of the machine is five years with no remaining value. What is the charge for depreciation for the year ended 31 December?
(A) $15,500
(B) $30,000
(C) $26,900
(D) $42,550

4. : What does it mean by the yearly method of depreciation?
(A) No depreciation in the year of purchase and full year’s devaluation in year of sale
(B) Full year’s depreciation in year of purchase and no depreciation in year of sale
(C) Full year’s depreciation in year of purchase and sale
(D) Monthly depreciation in year of purchase and sale

5. : In the accounting records, the fixed assets are normally recorded:
(A) At cost
(B) At book value
(C) At scrap value
(D) At replacement value

6. : Salvage value means:
(A) Cash to be paid when asset is disposed off
(B) Estimated disposal value
(C) Definite sale price of the asset
(D) Cash to be received when life of the asset ends

7. : Depreciation follows which accounting concept?
(A) Historical cost concept
(B) Matching concept
(C) Money measurement concept
(D) Going concern concept

8. : Which is not a method of depreciation?
(A) Revaluation
(B) Reducing balance
(C) Replacement method
(D) Straight line

9. : What method do we use for depreciating tools and crates?
(A) Diminishing balance method
(B) Revaluation method
(C) Straight line method
(D) Reducing balance method

10. : Which item may be included in a Balance Sheet at more than historical cost?
(A) Work-in-progress
(B) Goodwill
(C) Research expenditure
(D) Land and Building

11. : In Straight line method of depreciation, which is excluded?
(A) Useful life of the assets
(B) Cost of the asset
(C) Annual cost of repairs
(D) Expected salvage value

12. : A motor van was bought for $20,000 on 1 September, 2010 with a residual value of $2,000. Depreciation was charged at 2.0% by the reducing balance method on a yearly basis. It was sold for $18,000 after three years of use on 30 September 2014. Compute the profit on sale of asset.
(A) $7,760
(B) $505
(C) $5,201
(D) $990

13. : A fixed asset cost $100,000 had a book value of $40,000. It was sold for $10,000. What is the provision for depreciation sold?
(A) $30,000
(B) $60,000
(C) $10,000
(D) $50,000

14. : On 1 January, it bought machinery for $15,000. The methods are (i) straight line where useful life is 4 years and residual value is $2,000 and (ii) Reducing balance method at the rate of 20% per annum. Show how the company’s profit will be affected if the straight line method is used rather than the reducing method?
(A) Profit increased by $250
(B) Profit increased by $300
(C) Profit decreased by $500
(D) Profit decreased by $1,100

15. : The cost of the fixed asset is $100,000, provision for depreciation is $10,000, and depreciation charge for the year is $2,000. Show the net book value of the fixed asset in the Balance sheet:
(A) $74,000
(B) $55,000
(C) $24,000
(D) $78,000

16. : A machine was bought for $100,000. Its healthy life is four years with a residual value of $10,000; Depreciation is charged on the straight-line method. What is the percentage of depreciation rate on an annual basis?
(A) 15%
(B) 22.50%
(C) 35%
(D) 25%

17. : Motor Vehicles account has a balance of $80,000 and provision for depreciation account has a balance of $20,000. Two years ago, its value is $10,000 for $20,000. The motor vehicle has been depreciated to 20% per annum, on cost. What was the balance on the provision of depreciation after this disposal?
(A) $12,000
(B) $15,600
(C) $16,000
(D) $10,400

18. : What is the purpose of making a provision for depreciation in the accounts?
(A) To make a provision for repairs
(B) To make cash available to replace fixed assets
(C) To show the current market value
(D) To charge the cost of fixed assets against profits

19. : What is depreciation?
(A) The residual value of a fixed asset plus its original cost
(B) The cost of a replacement for a fixed asset
(C) The cost of an asset wearing away
(D) The part of the cost of the fixed asset consumed during the period of use by the business

20. : What is ignored in the computation of depreciation of a fixed asset?
(A) Its length of expected useful economic life to the business
(B) Its cost
(C) Its cost of repairs
(D) None of these