Fixed Assets Accounting using SLM MCQs Quiz | Class 10
This quiz is designed for Class X students, covering the Subject: Elements of Book-Keeping & Accountancy (Code 254), Unit 2: Depreciation. It focuses on Fixed Assets Accounting using the Straight Line Method (SLM), including concepts like Asset A/c, Depreciation A/c, and Accumulated Depreciation. Attempt all 10 multiple-choice questions, submit your answers to see your score, and download a detailed answer PDF for revision.
Understanding Fixed Assets Accounting and SLM Depreciation
Fixed assets are long-term tangible assets used in a business to generate income. Unlike current assets, they are not intended for sale in the ordinary course of business. Examples include machinery, buildings, furniture, and vehicles.
Fixed Assets Account (Asset A/c)
The Asset Account records all transactions related to a specific fixed asset. When an asset is purchased, the Asset Account is debited with its cost (including installation and freight charges). When it is sold, the Asset Account is credited. It represents the original cost of the asset on the Balance Sheet, before deducting depreciation.
- Purchase: Asset A/c Dr. to Bank/Cash A/c
- Sale: Bank/Cash A/c Dr. to Asset A/c (and profit/loss on sale)
Depreciation
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. It is an expense that reflects the reduction in the value of an asset due to wear and tear, obsolescence, or passage of time. The primary objectives of providing depreciation are:
- To ascertain the true profit or loss of the business.
- To present a true and fair view of the financial position.
- To provide funds for the replacement of assets.
- To ascertain the true cost of production.
Straight Line Method (SLM)
The Straight Line Method is one of the simplest methods of calculating depreciation. Under SLM, the amount of depreciation remains constant throughout the useful life of the asset. It assumes that the asset provides equal utility each year.
Formula:
Annual Depreciation = (Cost of Asset – Estimated Salvage Value) / Estimated Useful Life
Where:
- Cost of Asset: Purchase price + installation charges + freight.
- Estimated Salvage Value (Scrap Value): The estimated residual value of the asset at the end of its useful life.
- Estimated Useful Life: The period over which the asset is expected to be available for use.
Depreciation Account and Accumulated Depreciation Account
There are two main ways to record depreciation:
1. When Accumulated Depreciation Account is NOT maintained
In this method, the depreciation amount is directly credited to the Asset Account each year. This reduces the book value of the asset directly in its own account.
Journal Entry for Depreciation:
Depreciation A/c Dr.
To Asset A/c
At the end of the financial year, the balance of the Depreciation Account is transferred to the Profit & Loss Account.
Profit & Loss A/c Dr.
To Depreciation A/c
2. When Accumulated Depreciation Account IS maintained (Provision for Depreciation Account)
This is a more common approach, especially for larger businesses. Instead of crediting the asset account directly, depreciation is credited to a separate account called ‘Accumulated Depreciation Account’ or ‘Provision for Depreciation Account’. The asset account continues to show the asset at its original cost throughout its life.
Journal Entry for Depreciation:
Depreciation A/c Dr.
To Accumulated Depreciation A/c
The balance of the Depreciation Account is then transferred to the Profit & Loss Account.
Profit & Loss A/c Dr.
To Depreciation A/c
Presentation in Balance Sheet: The Accumulated Depreciation Account is shown on the asset side of the Balance Sheet as a deduction from the original cost of the respective fixed asset. This allows stakeholders to see both the original cost and the total depreciation charged till date.
Example: Calculating Book Value (SLM)
A machine costing Rs. 1,00,000 is purchased on 1st April 2020. Its estimated useful life is 10 years and estimated salvage value is Rs. 10,000.
Annual Depreciation = (Rs. 1,00,000 – Rs. 10,000) / 10 years = Rs. 90,000 / 10 = Rs. 9,000 per year.
- Book Value after 1 year (31st March 2021): Rs. 1,00,000 – Rs. 9,000 = Rs. 91,000
- Book Value after 2 years (31st March 2022): Rs. 91,000 – Rs. 9,000 = Rs. 82,000 (or Rs. 1,00,000 – (2 * 9,000) = Rs. 82,000)
Quick Revision Points
- Fixed Assets are long-term assets not meant for resale.
- Depreciation allocates the cost of a fixed asset over its useful life.
- SLM calculates a constant depreciation amount annually.
- Annual SLM Depreciation = (Cost – Salvage Value) / Useful Life.
- Depreciation is charged to the Profit & Loss Account.
- Asset Account records original cost and changes due to purchase/sale.
- Accumulated Depreciation is a contra-asset account, keeping the asset at original cost in the Asset A/c.
- Book Value = Original Cost – Total Accumulated Depreciation.
Practice Questions
- Which of the following would NOT be included in the cost of a machine for depreciation purposes?
a) Purchase price b) Installation charges c) Interest on loan for purchase d) Freight charges - If an asset has no salvage value, the depreciable amount is equal to its:
a) Book value b) Market value c) Original cost d) Replacement cost - What type of account is Accumulated Depreciation?
a) Asset b) Liability c) Contra-asset d) Revenue - A company purchased a delivery van for Rs. 2,50,000. It expects to use the van for 5 years and then sell it for Rs. 50,000. What is the annual depreciation under SLM?
a) Rs. 50,000 b) Rs. 40,000 c) Rs. 30,000 d) Rs. 20,000 - When a fixed asset is sold, any profit or loss on sale is transferred to which account?
a) Capital Account b) Revaluation Account c) Profit & Loss Account d) Bank Account
