Free Depreciation and Non-Current Assets MCQs with Answers

• A. To allocate its depreciable amount over its useful life
• B. To record its replacement cost at each year-end
• C. To estimate its selling price at the reporting date
• D. To accumulate cash for purchasing a new asset

Explanation: Depreciation systematically allocates the asset's depreciable amount over the periods that receive its benefits.

• A. Rs. 640,000
• B. Rs. 560,000
• C. Rs. 1,040,000
• D. Rs. 240,000

Explanation: Carrying amount equals the asset's cost less accumulated depreciation and accumulated impairment losses. Thus, Rs. 800,000 minus Rs.

• A. Rs. 24,000
• B. Rs. 20,000
• C. Rs. 16,000
• D. Rs. 80,000

Explanation: The first-year depreciation is Rs. 20,000, leaving a carrying amount of Rs. 80,000. Second-year depreciation is 20% of Rs.

• A. It increases in every future period
• B. It becomes an immediate capital gain
• C. It remains unchanged until disposal
• D. It decreases over the remaining useful life

Explanation: Depreciation is based on cost less residual value. A higher residual value reduces the depreciable amount, so future depreciation expense…

• A. Freehold land
• B. Office equipment
• C. Leasehold building
• D. Delivery vehicle

Explanation: Freehold land generally has an unlimited useful life and is therefore not depreciated.

• A. Rs. 20,000 loss
• B. Rs. 20,000 gain
• C. Rs. 40,000 gain
• D. Rs. 40,000 loss

Explanation: The asset's carrying amount is Rs. 120,000, calculated as Rs. 300,000 minus Rs. 180,000. Selling it for Rs. 140,000 produces a gain of Rs.

• A. Installing a major production component
• B. Extending the machine's useful life
• C. Routine oiling and minor repairs
• D. Adding a new operating capacity

Explanation: Routine oiling and minor repairs maintain the machine's existing condition and are normally charged as revenue expenditure.

• A. A prior-period error correction
• B. A discontinued operation
• C. A change in accounting policy
• D. A change in accounting estimate

Explanation: Useful life is an accounting estimate because it depends on expected future consumption of economic benefits.

• A. A depreciation reserve increase
• B. An impairment loss
• C. A revaluation surplus
• D. A deferred tax asset

Explanation: An impairment loss is recognized when the asset's carrying amount exceeds its recoverable amount.

• A. When the purchase order is approved
• B. When the first product is sold
• C. When the machine is available for use
• D. When the supplier receives payment

Explanation: Depreciation begins when the asset is in the location and condition necessary for its intended operation.

• A. Staff training after installation
• B. Advertising for the new product
• C. General office administration costs
• D. Installation and testing costs

Explanation: Installation and testing are directly attributable costs of bringing the asset to the location and condition required for operation.

• A. Rs. 100,000
• B. Rs. 120,000
• C. Rs. 108,000
• D. Rs. 132,000

Explanation: Depreciable amount is Rs. 900,000, giving depreciation of Rs. 10 per unit. For 12,000 units, depreciation is Rs.

• A. As revenue in the income statement
• B. As a revaluation surplus in other comprehensive income
• C. As an increase in share capital
• D. As a liability in the statement of financial position

Explanation: A normal upward revaluation is recognized in other comprehensive income and accumulated in equity as a revaluation surplus.

• A. As one asset over the shorter life
• B. As one asset over the longer life
• C. Separately over their respective useful lives
• D. Only when the roof is eventually replaced

Explanation: Significant parts of an asset with different useful lives are accounted for as separate components.

• A. Remove its cost and accumulated depreciation from the records
• B. Transfer its cost directly to retained earnings
• C. Continue depreciation until the sale proceeds are collected
• D. Record the sale proceeds as a liability until year-end

Explanation: Disposal requires derecognition of both the asset's cost and its related accumulated depreciation.

• A. It is a current liability account
• B. It is a contra-asset account
• C. It is an income account
• D. It is a capital reserve account

Explanation: Accumulated depreciation is a contra-asset account that reduces the asset's gross carrying amount to arrive at its carrying amount.

• A. Only when the asset is disposed of
• B. At least at each financial year-end
• C. Only after a physical accident
• D. Once every ten financial years

Explanation: The depreciation method is reviewed at least at each financial year-end to determine whether it still reflects the pattern of consumption…

• A. It continues at double the normal rate
• B. It continues until the sale contract is signed
• C. It ceases from the date of classification
• D. It is transferred to accumulated capital

Explanation: Depreciation ceases when the asset is classified as held for sale because its carrying amount will be recovered mainly through sale rather…

• A. It is paid through the business bank account
• B. It is supported by a supplier invoice
• C. It is incurred during the final month of the year
• D. It extends useful life or increases productive capacity

Explanation: Expenditure that extends useful life, improves performance, or increases productive capacity usually creates future economic benefits and…

• A. Its cost less its estimated residual value
• B. Its original cost plus accumulated depreciation
• C. Its carrying amount plus impairment losses
• D. Its residual value less accumulated depreciation

Explanation: Depreciable amount is the portion of an asset's cost that is allocated as depreciation over its useful life.