NIOS Class 10 Accountancy Chapter 12 Depreciation

NIOS Class 10 Accountancy Chapter 12 Depreciation Solutions to each chapter is provided in the list so that you can easily browse through different chapters NIOS Class 10 Accountancy Chapter 12 Depreciation and select need one. NIOS Class 10 Accountancy Chapter 12 Depreciation Question Answers Download PDF. NIOS Study Material of Class 10 Accountancy Notes Paper 224.

NIOS Class 10 Accountancy Chapter 12 Depreciation

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Also, you can read the NIOS book online in these sections Solutions by Expert Teachers as per National Institute of Open Schooling (NIOS) Book guidelines. These solutions are part of NIOS All Subject Solutions. Here we have given NIOS Class 10 Accountancy Chapter 12 Depreciation, NIOS Secondary Course Accountancy Solutions for All Chapters, You can practice these here.

Depreciation

Chapter: 12

Intext Questions 12.1

Fill in the blanks: 

(i) Depreciation represents a __________ in the value of fixed assets. 

Ans: Diminution.

(ii) Scrap value of an asset means the _________ that it fetched on sale at the end of its __________. 

Ans: Amount and life.

(iii) Depreciation is calculated as cost of assets less scrap value divided by __________.

Ans: Life of assets.

(iv) Obsolescence is one of the situations on fixed assets which arises due to change in ________, and fashion, taste and other market conditions.

Ans: Technology.

Intext Questions 12.2

Fill in the blanks: 

(i) The assumption underlying the fixed instalment method of depreciation is that the amount of the fixed assets over different years of its useful life remains the _________. 

Ans: Same.

(ii) Straight line method of charging depreciation is also known as _________ or ________. 

Ans: Fixed in statement method or Original cost method.

(iii) Under the straight line method the value of the assets at the end of its useful life is equal to __________ or its ___________. 

Ans: Zero, Net scrap value.

(iv) Under the straight line method the total burden on Profit and Loss Account in Comparison to earlier years is _____________.

Ans: More.

Intext Questions 12.3

Fill in the blanks with suitable words: 

(i) Depreciation represents a ________ in the value of fixed assets. 

Ans: Falls.

(ii) The amount of depreciation on machinery is credited to ______ account. 

Ans: Machinery.

(iii) Depreciation is calculated on _______ under the straight line method.

Ans: Original cost.

(iv) Depreciation is calculated on ________ under the diminishing balance method. 

Ans: Opening balance of the year.

(v) The value of an assets is not reduced to ________ even when there is no scrap value in diminishing balance method of depreciation.

Ans: Zero.

Intext Questions 12.4

I. State which of the following statements are true and which are false: 

(i) Amount of depreciation goes on reducing year after year in Straight Line Method. 

Ans: False.

(ii) The amount of depreciation remains the same for all years in Diminishing Balance Method.

Ans: False.

(iii) The book value of the asset can be reduced to zero in Straight Line Method. 

Ans: True.

(iv) The book value of the asset can never be reduced to zero in Diminishing Balance Method. 

Ans: True.

II. 

(i) Depreciation is charged on: 

(a) Stock of Goods. 

(b) Current Assets. 

(c) Fixed Assets. 

(d) Liquid Assets. 

Ans: (c) Fixed Assets.

(ii) Obsolescence term is used for: 

(a) Tear and wear of the Asset 

(b) Decrease in the value of the assets which are engaged in production. 

(c) Development of improved or superior quality of equipment. 

(d) Due to usage and age of assets. 

Ans: (c) Development of improved or superior quality of equipment.

(iii) Changing depreciation on Fixed Assets by Straight line method. The value of the asset is taken into consideration: 

(a) Original value. 

(b) Diminished value. 

(c) Scrap value. 

(d) Book value. 

Ans: (a) Original value.

(iv) Charging depreciation on Fixed assets by Reducing balance method, the value of the asset is taken into consideration. 

(a) Original cost method. 

(b) Diminished value. 

(c) Scrap value. 

(d) Book value. 

Ans: (b) Diminished value.

(v) The amount calculated for charging depreciation: 

(a) Includes the amount of scrap value of the Asset. 

(b) Do not include the amount of scrap value of the asset. 

(c) Cost of assets less scrap value. 

(d) None of the above.

Ans: (c) Cost of assets less scrap value.

(vi) Out of the following which is not the cause of depreciations: 

(a) Normal wear and tear. 

(b) Obsolescence. 

(c) Cost of asset. 

(d) Decrease or increase in market price. 

Ans: (d) Decrease or increase in market price.

(vii) Out of the following what will before annual depreciations: 

(a) Total Depreciation + Plus installation charges cost. 

(b) Total lost – Scrap value ÷ Expected life. 

(c) Total cost + Scrap value ÷ Expected life. 

(d) None of the above.

Ans: (b) Total lost – Scrap value ÷ Expected life.

(viii) Which one of the following is not a factor affecting annual depreciation on an asset. 

(a) Cost of the Asset. 

(b) Scrap Value of the asset. 

(c) Useful life of the asset. 

(d) Annual maintenance on the asset. 

Ans: (d) Annual maintenance on the asset.

(ix) Out of the following on which asset depreciation will be charged: 

(a) Stock. 

(b) Debtors. 

(c) Machinery. 

(d) Land. 

Ans: (c) Machinery.

(x) Out of the following assets on which depreciation will not be charged: 

(a) Machinery. 

(b) Plant. 

(c) Photocopier. 

(d) Stock.

Ans: (d) Stock.

1. What is depreciation? Write the various objectives of providing depreciation.

Ans: Depreciation is an accounting method used to allocate the cost of tangible assets over their useful lives. Tangible assets, such as buildings, machinery, vehicles, and equipment, are expected to decline in value over time due to factors such as wear and tear, obsolescence, or deterioration. Depreciation reflects this decline in value by systematically reducing the asset’s carrying value on the balance sheet over its useful life.

Following are the objectives of charging depreciation of Assets: 

(i) To show the True Financial Position of the Business: As are Fixed Assets have some effective working life during which they can be economically operated. Depreciation is the gradual loss in the value of fixed assets. If depreciation is not provided, profit and loss A/c will not disclose the true profit made during the accounting period. At the same, the Balance Sheet will not disclose the true Financial position as Fixed assets appearing in the Balance Sheet will be over valued. If depreciation is ignored year after year, ultimately when asset is worn out, the proprietor will not be is a position to continue the business smoothly. 

(ii) To retain funds in the business for replacement of the asset: Net profit is the yield of the capital invested by proprietor and may be wholly withdrawn by him in the form of cash. If depreciation is provided, this figure of net profit will be reduced and the amount withdrawn by the proprietor will also be decreased. As such the cash equivalent to the change for depreciation will be left over the business. This accumulated amount will enable the proprietor to replace a new asset.

2. What are the causes of providing depreciation?

Ans: Following are the causes for which depreciation is provided in accounts. 

(i) Normal wear and tear: 

(a) Due to usage: Every asset has a life for which it can run, produce or give service. Thus, as we put the asset to use its worth decreases. Like decrease in the efficiency and functioning of a bicycle due to its running and usage. 

(b) Due to the passage of Time: As the time goes by elements of nature, wind, sun, rain etc, cause physical deterioration in the worth of an asset. Like reduction in the worth of a piece of furniture due to passage of time even when it is not used.

(ii) Obsolescence: 

(a) Due to development of improved or superior equipment: Sometimes fixed assets are required to be discarded before they are actually worn out due to either of the above reasons. Arrival of superior equipment and machines etc. allow production of goods at lower cost. 

(b) Due to change in fashion, style, taste or market conditions: Obsolescence may also result due to decline in demand for certain goods and services with a change in fashion, style, taste or market conditions. The goods and services that are no longer in vogue lead to decrease in the value of the assets which were engaged in their production – like factories or machines meant for making old fashioned hats, shoes, furniture etc.

3. What are the two methods of providing depreciation? Explain their merits and demerits.

Ans: The two methods of providing depreciation are:

(i) Straight Line Method of Depreciation: Under this method, the amount of depreciation is uniform from year to year. Suppose, if an asset costs Rs.1,00,000 and depreciation is fixed @ 10%, then Rs.10,000 would be written off every year. That is why this method is also called ‘Fixed Instalment Method’ or ‘Original Cost Method’. In this method, the amount to be written off every year is arrived at as under:

Merits of straight line method:

(a) Simplicity: Calculation of depreciation under this method is very simple and therefore the method is widely popular. Once the amount of depreciation is calculated, the same amount is written off as depreciation each year. Hence this method is simple and calculations are easier to understand.

(b) Asset is completely Written Off: Under this method, the book value of an asset is reduced to net scrap value or zero value. In other words, in the books of accounts the value of the asset at the end of its useful life is equal to zero or its residual value.

Demerits of straight line method:

(a) Difficulty in Computation: When there are various machines having different life-spans, the computation of depreciation becomes complicated because the depreciation on each machine will have to be calculated separately for each asset.

(b) Illogical: It is well known that the expense on its repairs and maintenance increases as the asset becomes older. Thus, the total burden on Profit and Loss Account, depreciation plus repair expenses, is more in later years in comparison to earlier years. This is illogical because the efficiency and productivity of the asset is more in earlier years and less in later years.

(ii) Diminishing balance method: Under this method, as the value of assets goes on diminishing year after year, the amount of depreciation charged every year goes on declining. The amount of depreciation is calculated as a fixed percentage of the diminishing value of the asset shown in the books at the beginning of each year. Under this method the value of an asset never comes to zero.

Merits of diminishing balance method:

(a) Equal Burden on Profit & Loss Account The productivity of the asset is more hence its contribution to profit is also relatively greater. Therefore the cost charged in terms of depreciation should also be greater.

Demerits of diminishing balance method:

(a) Asset cannot be completely written off: Under this method, the value of an asset is not reduced to zero even when there is no scrap value.

(b) Complexity: Under this method, the rate of depreciation cannot be determined easily.

4. What are the objectives of providing depreciation?

Ans: Following are the objectives of charging depreciation of Assets: 

(i) To show the True Financial Position of the Business: As are Fixed Assets have some effective working life during which they can be economically operated. Depreciation is the gradual loss in the value of fixed assets. If depreciation is not provided, profit and loss A/c will not disclose the true profit made during the accounting period. At the same, the Balance Sheet will not disclose the true Financial position as Fixed assets appearing in the Balance Sheet will be over valued. If depreciation is ignored year after year, ultimately when assets are worn out, the proprietor will not be in a position to continue the business smoothly. 

(ii) To retain funds in the business for replacement of the asset: Net profit is the yield of the capital invested by the proprietor and may be wholly withdrawn by him in the form of cash. If depreciation is provided, this figure of net profit will be reduced and the amount withdrawn by the proprietor will also be decreased. As such the cash equivalent to the change for depreciation will be left over the business. This accumulated amount will enable the proprietor to replace a new asset.

5. Distinguish between Straight Line Method and Diminishing Balance Method of Depreciation.

Ans: 

6. Krishnamohan Limited purchased machinery on October 1, 2008 for Rs. 90,000 and spent Rs. 10,000 on its erection. The depreciation is to be charged @ 10% p. a. on original cost. Show the Machinery Account for three years if books are closed on March 31 every year.

Ans: We will update the answer very soon.