2016 Book Keeping (5 x 2 Marks)
Short questions on Depreciation
1. Why Depreciation is not charged on Land?
Ans: For calculating depreciation, the life of the asset is required. Since Land is assumed have an unlimited useful life, there is no question of Depreciation on the Land.
The other assets which are not required to depreciate are:
A. Collectibles like Art, Coins or Memorabilia
B. Investments like Stocks or Bonds
C. Any asset put into use for less than one year.
2. Is Depreciation is the result of fluctuations in the value of Assets?
Ans: No. Fluctuations in the value of Asset is concerned with the Market value of Assets, where as Depreciation is concerned with the Historical cost (i.e., cost of acquiring Fixed Asset)
3. Should be Depreciation be provided even if there is loss in any financial year?
Ans: Yes. Depreciation is charge against Profit, not an appropriation of the Profit. Depreciation should be provided compulsorily irrespective of the fact, whether the company is in profit or loss.
4. Should Depreciation be provided on a fixed asset of which the market value is higher than the book value?
Ans: Yes. Depreciation should be provided whether the Assets have higher market value or not.
5. Should Depreciation be charged on a machine even if it has not been used in a financial year?
Ans: Yes. Depreciation has nothing to do with whether the asset in use or not. It related to the value of an asset, but not whether used or not.