Chapter 7 Depreciation, Provisions and Reserves

1.   What is depreciation?

2.   State briefly the need for providing depreciation.

3.   What are the causes of depreciation?

4.   Explain basic factors affecting the amount of depreciation.

5.   Distinguish between straight line method and written down value method of calculating depreciation.

6.   In case of long term asset, repair and maintenance expenses are expected to rise in later years than in earlier year. Which method is suitable for charging deprecation if the management does not want to increase the burden on profits and loss account of depreciation and repair?

7.   What are the effects of depreciation on profit and loss account and balance sheet?

8.   Distinguish between provision and reserve.

9.   Give four examples each of provision and reserves

10.  Distinguish between revenue reserve and capital reserve

11.  Give four examples of revenue reserve and capital reserves

12.  Distinguish between general reserve and specific reserve

13.  Explain the concept of secret reserve.

Long answers

1.   Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?

2.   Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.

3.   Describe in detail two methods of recording depreciation. Also give the necessary journal entries.

4.   Explain determinants of the amount of depreciation.

5.   Name and explain different types of reserves in details.

6.   What are provisions? How are they created? Give accounting treatment in case of provision for doubtful debts.