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Important Questions for CBSE Class 11 Accountancy Chapter 7 - Depreciation, Provisions & Reserves

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CBSE Class 11 Accountancy Important Questions Chapter 7 - Depreciation, Provisions & Reserves - Free PDF Download

The Important Questions for Depreciation, Provisions & Reserves of Chapter 7 is aimed at the CBSE Class 11 Accountancy Students. In this article, the students will get the important questions and answers to Chapter 7 of Class 11 Accountancy. Students are required to download the free PDF of the study material in order to study the important questions even when they are offline. Further, we have also discussed the important topics of this chapter and a few study tips on how to score full marks in this chapter in the upcoming exams.

Study Important Questions for Class 11 Accountancy Chapter 7 - Depreciation, Provisions and Reserves

A. Very Short Answer Questions – 1 marks

1. Define the term ‘matching principle’.

Ans: The matching principle states that revenue from one period should match expenses from the same time to provide profitability for a specific period.


2. What are the Importance of depreciation?

Ans: Depreciation is a non-cash operating expense that is used to determine the true profit or loss. It helps to determine the true cost, estimate the value and save tax of the business.

3. Provide true or false for the following

i. Straight line method is recognised by Income Tax Law

Ans: The above statement is False because, Written value method (WDV) is recognised by Income Tax Law.

ii. Written down value method is not recognised by the Income Tax Law

Ans: The above statement is False because, Written value method is recognised by Income Tax Law.

iii. Secret reserve are not shown in balance sheet

Ans:  The above statement is True. Secret reserves are not shown in the balance sheet.

iv. Revenue reserve are available for distribution for dividend

Ans: The above statement is True. Revenue reserves are available for distribution for dividend.


4. What do you understand by ‘Secret Reserve’

Ans: Secret reserve refers to the amount by which assets are understated or liabilities are inflated. These are not shown in the balance sheet.


5. Name the types reserve

Ans: There are three sorts of reserves:

  1. General reserve and specific reserve,

  2. Capital reserve and revenue reserve, and 

  3. Capital reserve and revenue reserve.


B. Short Answer Questions – 2 marks

1. What do you understand by the term ‘depreciation’?

Ans: Deprecation is an accounting strategy that gradually lowers the book value of an item over its useful life. It is a charge incurred as a result of an asset's wear and tear.


2. What are the factors on which the amount of depreciation depends?

Ans: The rate of depreciation is determined by three factors:

  1. The asset's cost

  2. Asset's useful life or file expectancy

  3. The asset's net realisable worth


3. Name the method of calculating depreciation amount of an asset.

Ans: The following are the two ways for determining depreciation:

  1. The method of a straight line

  2. Values written down method

  3. Unit of Production Method


4. What are the examples of reserve and provision?

Ans: Workmen's compensation fund, investment fluctuation fund, dividend equalisation fund, and reserve for debt redemption are all examples of reserves. Provision for Tax and Provision for Bad debts are the examples for provisions.


5. How assets disposal account are useful.

Ans: When an asset is sold, a new account called "Asset Disposal Account" is created in the ledger. The asset disposal account is used to determine the profit or loss on the asset's sale.


C. Short answer questions – 3 marks

1. Explain the reasons of depreciation in an asset

Ans: The reasons of depreciation in an assets are as explained below:

  1. Depreciation in an asset can occur for a variety of reasons, including wear and tear from use or the passage of time.

  2. Assets become obsolete after a specific amount of time due to obsolescence.

  3. Assets' legal rights may expire after a predetermined period. 

  4. Depreciation may occur due to unusual circumstances such as an accident, fire, or natural disaster..


2. Define provision. What are the examples of provision?

Ans: The expenses or losses related to the present accounting period which are still not incurred cannot be recorded as their amount is not known with certainty are recorded in provision. The examples of provisions are:

  1. Provision for Depreciation.

  2. Provision for taxation.

  3. Provision for doubtful and bad debt.

  4. Provision for discount of debtors.

  5. Provision for repair and renewal.


3. Differentiate between specific and general reserve.

Ans: The difference between specific and general reserve are:

S.no

General Reserve

Specific Reserve

1.


2.


3.

It was established as a free reserve.

It can be utilised as a source of funding anything.

It improves the financial situation of the firm's position.

It was designed with a specific objective in mind.

It is used purely for the purpose  for which it was designed.

It has no effect on the company's financial situation.


4. Differential between capital Reserve and revenue reserve

Ans: The difference between capital Reserve and revenue reserve are:

S.no

Capital Reserve 

Revenue Reserve

1.

2.


3.

They arise as a result of the company's day-to-day operations.

They are accessible for dividend distribution.

They're made for unique objectives or unforeseeable circumstances.

They are not a result of the company's day-to-day operations.

They are not eligible for dividend distribution.

They're made to fit every situation as a legal necessity or as an example of accounting practice.


5. How provisions are shown in balance sheet ?

Ans: In the balance sheet, provisions are handled in the following ways:

  1. On the asset side of the balance sheet, it is deducted from the concerned assets, and in the case of provision for doubtful debt, it is deducted from the amount of various debtors.

  2. Provision for taxes and provision for repairs and renewals are recorded on the liabilities side of the balance sheet, alongside current liabilities.


D. Long Answer Questions- 5 marks

1. The cost of truck is 1100000 and net salvage value after 15 years is 60000. Calculate the appropriate rate of depreciation using written down method.

Ans: Formula for Rate of Depreciation (R): R={1-nS/C} ×100

r = Rate of depreciation

n = Expected useful life

s = Scrap value

c = Cost of an asset

By putting the values in formula

R= 1-1560000/1100000 ×100 = 16.77%


2. Differentiate between straight line and written down methods of depreciation.

Ans: The difference between straight line and written down methods of depreciation are:

S.No

Straight Line Method 

Written Down Method

1.



2.



3.



4.

Depreciation is charged according to the original cost or historical cost of

the asset.

Annual Depreciation amount is constant


They are not recognised under Income Tax Law


Best suited for assets which have low repair and maintenance cost

Depreciation is charged according to the Net book value of the asset


Depreciation is highest in the first year then it reduces every year


They are recognised under Income Tax Laws


Best suited for assets which require high

repair and maintenance cost.


3. The initial cost of the truck is Rs. 2,60,000 and the useful life of the asset is 10 years and net scrap value is estimated to Rs. 60,000. Calculate the amount of depreciation to be charged every year using straight line method

Ans: Formula for calculating depreciation:

 \[  Depreciation =\frac{\text{Cost of asset- Estimated net residential value}}{\text{Estimated useful life of the asset}}\]

By putting value in formula

 \[  Depreciation =\frac{\text{260,000- 60,000  }}{\text{ 10}}=20000\]


4. Describe the advantage of straight line method and written down value method.

Ans: The straight line approach has the following advantages:

  1. It is very basic and simple to grasp.

  2. It allows for asset depreciation up to net scrap value or zero value.

  3. Because depreciation is constant year after year, comparing profits from two or more years will be simple.

  4. It is employed when the assets' life expectancy can be determined.

The Written Down Method has the Following Advantages:

  1. Its assumptions are more plausible.

  2. It is recognised by tax legislation.

  3. Because the first year has the biggest depreciation, the loss from obsolescence is minimised.


5. Explain the various types of reserve

Ans: The Reserves are Divided into Two Categories: 

  1. General reserve and specific reserve: General reserve was developed as a free reserve, allowing the corporation to use it for any purpose. While a specific reserve is set aside for certain purposes such as workers' compensation, dividend equalisation, and so on.

  • Capital reserve and revenue reserve: Capital reserve is formed from capital profit and does not emerge from the business's running activities. They are not eligible for dividend distribution. Revenue reserve is formed through the business's operating activities. They can be used to write off capital losses or to distribute bonuses.

Important Questions of Depreciation, Provisions & Reserves (Chapter 7, CBSE Class 11) - How will it help the students?

The study material will prove to be a great resource for the students of Class 11. These are the following benefits that the students will render by reading the important questions prepared by us:

  1. Class 11 Accountancy, Chapter 7 is a very important chapter. The students are required to study each and every point from this chapter, which might be a tedious thing to do before the exam, thus with the help of the important questions and answers from this chapter, will help the students to get a hold of the chapter in a brief way.

  2. The questions are prepared with NCERT material, hence the totality of their preparation is guaranteed.

  3. The students can well analyse which questions will be asked in the exam after they know the important coverage from the chapter. 

  4. The important questions and answers will also be a revision material that can be accompanied at the time of revision. 

Important Questions of Depreciation, Provisions & Reserves (Chapter 7, CBSE Class 11) - Important Topics Covered in the Chapter

Following are the important topic coverage of the chapter, which should be mandatorily studied by the students:

  1. Methods of Calculating Depreciation

  2. Types of Reserve

  3. Difference between Provision and Reserve.

Depreciation, Provisions & Reserves - Tips to Study the Chapter Well

Below are some tips which might help you to study this chapter better which will lead you to understand the chapter and thus score good marks:

  1. Firstly, the concepts are to be understood. The concepts like provision and reserves are quite tricky, the students are required to be careful in studying these.

  2. The types of depreciation must be understood in clarity.

  3. Sums related to the types of depreciation must be practised thoroughly by the students.

  4. If you are facing doubt then you must refer the same to your teachers and mentors. 

  5. The students can also refer to the previous year’s question papers and look out for the types of questions that were asked from Chapter 7.

  6. Apart from all this, revision is mandatory. The students must revise the chapter well from Revision Notes of Chapter 7 (Depreciation, Provisions & Reserves) 

CBSE Class 11 Accountancy Important Questions Chapter 7 - Depreciation, Provisions & Reserves - Free PDF Download - Quick Links

Important Questions of Chapter 7 are exhaustively found in this study resource. The students are advised to download the free PDF and use them for their preparation. We have also listed down the important topic coverage which must be taken care of.

Additionally, do check out the study tips for this chapter, you can implement the same in your study for this chapter. 


What are the Benefits of Important Questions from Vedantu for Class 11 Accountancy Chapter 7 - Depreciation, Provisions & Reserves

  • Prioritize key topics for effective study sessions.

  •  Eases exam stress and enhances preparation.

  •  Strengthens grasp on fundamental concepts.

  •  Inculcates valuable time management skills.

  • Facilitates self-assessment and progress monitoring.

  • Strategic methodology for achieving higher scores.  

  • Comprehensive coverage of topics ensures a thorough understanding.

  • Boosts confidence and supports overall exam readiness.


Conclusion

Reviewing all the crucial questions for Class 11 Accountancy Chapter 7 - Depreciation, Provisions & Reserves provides students with a solid grasp of the chapter's topics. The extra and important questions for Class 11 Chapter 7 - Depreciation, Provisions & Reserves engage in a concept-focused discussion, encompassing all chapter themes. This question-and-answer method proves time-saving during exam prep, offering an efficient way to revise the chapter and enhance understanding. Practicing these important questions streamlines preparation and boosts confidence for the upcoming exams.

FAQs on Important Questions for CBSE Class 11 Accountancy Chapter 7 - Depreciation, Provisions & Reserves

1. What is depreciation?

Any business holds and acquires fixed assets to be used in their business over a period of time, and due to the regular use of these, they start losing their value with time. This loss and the fall in the value of the fixed assets because of the regular use or expiry of time is termed as depreciation. Therefore, in simple words, depreciation is the gradual and permanent decline in the book value of the fixed asset. 

2. What is the need for providing depreciation?

Here are the reasons to provide depreciation:


To Present The True Value Of The Financial System

  • The assets are shown to have a higher value in comparison to their actual value on the Balance sheet, and thus this balance sheet will not reflect the true insight into the financial system. To avoid this depreciation is to be charged.

Providing Funds For The Replacement Of Assets

  • Because depreciation is not a cash expense, the replacement of the fixed assets after its use is charged by the amount of depreciation retained in the business. 

3. What are the three causes for depreciation?

The three causes for depreciation are as follows:


Constant Use

As a result of the constant use of the fixed assets, it loses its value after a period of time.


Expiry of Time

The assets lose their effectiveness with the passage of time even if it is not used. Natural processes such as rain, weather, etc lead to the deterioration of the assets.


Expiry of Legal Rights

When an asset is acquired for the business for a given time period, then its value drops to zero when the time period comes to end. It doesn't matter whether the asset was used or not. 

4. What are the basic factors that affect the amount of depreciation?

The basic factors that affect the amount of depreciation are:


Total Cost of Asset

To get the amount of depreciation, it is important to get the total cost of the asset.  The expenses that one comes across while acquiring this asset, and installing and constructing it is also included in the total cost of the asset.


Estimated Useful Life

Every asset has with it its estimated useful life, which is considered as the effective life of the fixed asset. 


Estimated Scrap Value

This is the net realisable value or the sale value of the asset at the end of its effective life. 

5. Are NCERT Solutions available for Class 11 Accountancy Chapter 7?

Yes, the NCERT Solutions for Class 11 Accountancy Chapter 7 are easily available and can be downloaded for free from the website of Vedantu. These solutions have exercises that are syllabus-based and will help the student to understand the concepts better. The answers that every question offers are to the point which the students can learn to retain and remember without much difficulty.  With the persistent practice of these exercises, the student will be easily able to score more than 90 in any given exam. These solutions are available at free of cost on the Vedantu app and the Vedantu website.