Depreciation Accounting Questions and Answers

Q: A company paid ₹ 50,000 for a purchase of copyright for five years. The process of writing off this cost over a period of five years is called ................ .

Writing off the cost of a copyright is called amortization.A copyright is an intangible asset with a limited useful life. Spreading its cost over that life, here ₹ 10,000 a year for five years, is amortization, the intangible-asset counterpart of depreciation. Patents, licences and goodwill are written off the same way.Depreciation applies to tangible fixed assets such as machinery and buildings, and depletion to wasting natural resources such as mines and oil wells. Deferred revenue expenditure is revenue spending, such as heavy advertising, whose benefit is spread over several years; buying a copyright is capital expenditure on an asset.

Q: Which of the following methods of depreciation is recognised for income tax purposes ?

The method recognised for income tax purposes is the written down value method.Under section 32 of the Income Tax Act, 1961, depreciation on tangible and intangible assets is allowed on the written down value of each block of assets, at the rates prescribed in the Income Tax Rules. The rate is applied every year to the opening balance of the block as reduced by earlier depreciation.The straight line method is allowed only as an exception, for undertakings engaged in generating or distributing power, so it is not the method generally recognised. The annuity and revaluation methods are used in accounting for particular assets such as leases and loose tools, but are not allowed for computing depreciation under the Act.

A company paid ₹ 50,000 for a purchase of copyright for five years. The process of writing off this cost over a period of five years is called ................ .

A.Depreciation
B.Amortization
C.Deferred Revenue Expenditure
D.Depletion

Exam Year(s)

MH SET - 2018, SET Exam - 2018,

Answer: B

Writing off the cost of a copyright is called amortization.

A copyright is an intangible asset with a limited useful life. Spreading its cost over that life, here ₹ 10,000 a year for five years, is amortization, the intangible-asset counterpart of depreciation. Patents, licences and goodwill are written off the same way.

Depreciation applies to tangible fixed assets such as machinery and buildings, and depletion to wasting natural resources such as mines and oil wells. Deferred revenue expenditure is revenue spending, such as heavy advertising, whose benefit is spread over several years; buying a copyright is capital expenditure on an asset.

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Which of the following methods of depreciation is recognised for income tax purposes ?

A.Straight line method
B.Annuity method
C.Written down value method
D.Revaluation method

Exam Year(s)

MH SET - 2018, SET Exam - 2018,

Answer: C

The method recognised for income tax purposes is the written down value method.

Under section 32 of the Income Tax Act, 1961, depreciation on tangible and intangible assets is allowed on the written down value of each block of assets, at the rates prescribed in the Income Tax Rules. The rate is applied every year to the opening balance of the block as reduced by earlier depreciation.

The straight line method is allowed only as an exception, for undertakings engaged in generating or distributing power, so it is not the method generally recognised. The annuity and revaluation methods are used in accounting for particular assets such as leases and loose tools, but are not allowed for computing depreciation under the Act.

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Depreciation Accounting Questions and Answers

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Depreciation Accounting Questions and Answers

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