Question 1

What is depreciation?

Accepted Answer

Depreciation is the permanent, continuous, and gradual decrease in the book value of fixed assets due to use, efflux of time, obsolescence, or accident.

Question 2

Which method of depreciation charges equal amount of depreciation every year?

Accepted Answer

Under the Straight Line Method, a fixed and equal amount of depreciation is charged every year during the useful life of the asset.

Question 3

Under the Diminishing Balance Method, depreciation is calculated on:

Accepted Answer

In the Diminishing Balance Method, depreciation is calculated on the written-down value (book value) of the asset at the beginning of each year.

Question 4

What is a provision?

Accepted Answer

A provision is an amount retained by way of providing for any known liability, the amount of which cannot be determined with substantial accuracy.

Question 5

What is a reserve?

Accepted Answer

A reserve is an amount set aside out of profits and other surpluses to strengthen the financial position of the business.

Depreciation, Provisions and Reserves