Recent questions tagged fa

Description : Is depreciation charged to reduce profits or to reduce the value of asset during a financial year?

Last Answer : It is charged to reduce value of asset.

Description : Give journal entry for adjusting profit made due to change in method of depreciation.

Last Answer : It can only be achieved by reducing rate of Dep retrospectively.

Description : What is retrospective change in depreciation method?

Last Answer : It means change in accounting policy such that it was present from starting.

Description : What is prospective change in depreciation method?

Last Answer : Prospective Change means the effect of accounting estimate and new policy is from current date and in future entry.

Description : Give equation for calculating depreciation under reducing balance method.

Last Answer : Dep per annum= (NBV- Salvage)*rate;

Description : Give equation for calculating depreciation under straight-line method.

Last Answer : Dep per annum= cost-salvage/useful life;

Description : What is scrap value?

Last Answer : Also known as residual/salvage value. The value means below which depreciation cannot be applied or in simpler terms assets useful life is over.

Description : Why fixed instalment method is also called as straight-line method?

Last Answer : As name suggests the depreciation amount is same each period so it is called fixed installation/straight line.

Description : What do you mean by obsolescence?

Last Answer : When new model for asset procured/installed earlier is released the previous asset market value decreases. This is Obsolescence.

Description : In which case depletion of assets takes place?

Last Answer : Just like depreciation, depletion is accounting concept popularly utilized for tangible objects like Mineral Gas, Timber etc. where wear/tear for asset is not there. In these cases the followinf formula is used:

Description : What do you mean by exhaustion of an asset?

Last Answer : When useful life for asset is zero or Asset is fully depreciated.

Description : Why is depreciation charged even in the year of loss?

Last Answer : Depreciation process does not depend on Profit/Loss, it is mandatory to charge depreciation as expense on Asset is distributed

Description : Why is depreciation charged by business, which makes losses?

Last Answer : If I hide Depreciation for showing higher profits even if organization is in loss, I may end up paying Tax too. Which will in fact reduce my margin for profit. It will be better to show depreciation and claim tax benefit.

Description : How does physical wear and tear result in depreciation?

Last Answer : Physical Wear/Tear tend to worn out the Asset decreasing its productivity over period. Thus, market value decrease for the asset.

Description : Why depreciation is charged to an asset?

Last Answer : As per Accounting Standards, it is a good practice to show the capital expense every period i.e. period wise. Thus, profits will be evenly shared in each period.

Description : What are the features of depreciation?

Last Answer : 3.1 Net Book value will decrease for asset. 3.2 Includes loss of value due to usage, obsolescence. 3.3 Continuing Process. 3.4 Must be deducted before calculation taxable profits, as this is an ... then taxable profit is 50000 - 10000 = 40000 INR. 3.5 Does not include any actual cash flows.

Description : What are the different causes of depreciation?

Last Answer : Wear and Tear; as over a period if asset is utilized it will be damaged and repair may be needed.

Description : What is depreciation?

Last Answer : Defined as reduction in value/cost of asset in systematic Manner