Let’s look at some multiple choice questions which are based on the concept of deprecation –
Q 1 Deprecation is less under straight line deprecation method than written down value method during –
A) First few years
B) Last few years
C) It is always higher
D) It is same under both the methods
Correct answer is Option A
Q 2 Value of asset would be zero at the end of useful years under which method
A) Written down value
B) Straight line
C) Sum of years digits method
D) None of the above
Correct answer is Option B
Q 3 A machine cost $1400 its salvage value is $200 and its useful life is 4 years, what will be deprecation every year under straight line method
A) $200
B) $300
C) $400
D) $500
Correct answer is Option B (By using the formula cost-salvage value/useful life)
Q 4 When Company is expected to earn more profits during initial years then it would prefer to use which method of deprecation so as to lower its tax liability
A) Written down value
B) Straight line
C) Sum of years digit method
D) Any of the above
Correct answer is Option A
Q 5 Which of the following statement is incorrect
A) Under straight line method the deprecation will remain same throughout the useful life of an asset.
B) Under written down value method deprecation will be high in initial years and it will keep declining as years pass on.
C) Sum of year’s digit method will result in lower deprecation in initial years and higher deprecation during later years.
D) All statements are correct
Correct answer is Option C
Q 6 Which of the following statement is correct
A) All assets like machinery, plant, furniture, building, land need to be deprecated.
B) All companies which are in the same industry follow same method of deprecation.
C) Book value of asset is always equal to market value of asset.
D) Deprecation does not result in cash outflow for the company.
Correct answer is Option D