35 Short Questions and Answers-Plant Assets and Depreciation [Notes with PDF]

Today we’ll learn “35 Short Questions and Answers- Plant Assets and Depreciation.”

Plant assets have specific sizes and forms and are not intended to be sold to customers and are used in a company’s operations.

If you read this article with a proper concentration from top to bottom, you’ll get a basic idea of Plant Assets and Depreciation.

It will also increase your knowledge of accounting and help you perform well on any competitive exam.

Short Questions and Answers-Plant Assets and Depreciation

So let’s get started.

Question-01: What do plant assets mean?

Answer: Plant assets are tangible resources that are not intended for sale to customers and are used in company operations.

Question-02: What is a fixed asset?

Answer: Fixed assets refer to the long-term investment in all types of visible and invisible assets of an organization that helps increase profits by conducting day-to-day activities.

Question-03: What is a tangible asset?

Answer: Tangible assets refer to the assets that actually exist or that can be touched. E.g., land building, furniture, etc.

Question-04: What is an intangible asset?

Answer: Intangible assets refer to the assets that do not exist or cannot be touched. For example, Goodwill, patents, copyrights, etc.

Question-05: What is a natural resource?

Answer: Natural resources are those properties that are given by nature and which are reduced in quantity as a result of extraction. E.g., gas, oil, mine, etc.

Question-06: What is a patent?

Answer: A patent is an overall right to use an invention.

Question-07: What does copyright mean?

Answer: Copyright is an exclusive grant from the federal government that allows an artistic or published work to be reproduced and sold by the owner.

Question-08: What’s the cost of research and development (R&D)?

Answer: The expenditures that may result in patents, copyrights, new processes, or new products are research and development (R&D) costs.

Question-09: What does goodwill mean?

Answer: Goodwill is the value of all the beneficial attributes associated with an organization that is not attributable to any other specific asset.

Question-10: What’s a license?

Answer: A license is a contractual arrangement under which a franchisor grants the franchisee the right to sell certain goods, to perform specific services, or to use certain marks or trade names, normally within a designated geographical area.

Question-11: What is Asset turnover?

Answer: Asset turnover is a measure of how effectively a business uses its assets to generate sales.

Question-12: What is the formula to calculate asset turnover?

Answer: Asset Turnover= Net sales/Average Total Assets.

Question-13: What is depreciation?

Answer: Depreciation is the process of rational and systematic allocation of the cost of a plant asset over its useful (service) life.

Question-14: The English word “Depreciation” comes from which word?

Answer: English word “Depreciation” comes from the Latin word “Depretium”.

Question-15: What does depletion mean?

Answer: Depletion is the allocation of a natural resource’s cost to expend over the useful life of the resource in a rational and systematic way.

Question-16: What does amortization mean?

Answer: Amortization is the systematic and rational allocation of the cost of an intangible asset to expenditure over its useful life.

Question-17: What are the features of depreciation?

Answer: The main features of depreciation are as follows:

Depreciation is a

• Revenue expenditure
• Non-visible expense
• Non-cash expense
• Estimated expense etc.

Question-18: What are the causes of charging depreciation?

Answer: The causes of charging depreciation are-

 Internal Causes:

• Wear and Tear
• Exhaustion
• Passage of time

External Causes:

• Effusion of time
• Obsolescence
• Accidental loss

Question-19: What are the objectives of charging depreciation?

Answer: The objective of charging depreciation are as follows:

• Determine of actual profit or loss
• Determining actual financial position
• Replacement of fixed assets
• Maintenance of capital
• Ascertainment of the actual cost of production
• Determination of accurate value of assets
• Detection of tax liabilities

Question-20: What is the effect of not charging depreciation?

Answer: The effects of not charging depreciation are as follows:

• Problem in the determination of actual profit and loss.
• Problem of determining the actual financial picture.
• Problem of replacement of fixed assets.
• Problem of maintenance of capital.
• Problem of ascertainment of the actual cost of production.

Question-21: Which factors are to be considered while determining depreciation?

Answer: The following factors are to be considered while determining depreciation.

• Total cost of assets
• Salvage value
• Depreciable value
• Estimated useful life

Question-22: How many depreciation methods are there?

Answer:

On the basis of Time:

• Straight line method
• Declining balance method
• Sum of years digit method

On basis of Uses:

• Machine-hours method
• Production output method

Other methods:

• Annuity method
• Sinking fund method
• Revaluation method

Question-23: What is the method of accelerated depreciation?

Answer: The accelerated depreciation method is a method that in the early years generates higher depreciation costs than in later years.

Question-24: What is the declining-Balance method of depreciation?

Answer: The method of declining balance is a method that applies a constant rate to the asset’s declining book value and produces a decreasing annual depreciation expense over the asset’s useful life.

Question-25: What is the straight-line depreciation method?

Answer: The straight-line method is a method of depreciation in which periodic depreciation for each year of the useful life of the asset is the same.

Question-26: What is the Units-of-activity method of depreciation?

Answer: The unit-of-activity method is a method of depreciation in which the useful life of an asset is expressed in terms of the total units of production or use anticipated.

Question-27: What is the cost price of the asset?

Answer: The cost price of the asset refers to the value of an asset and the cost of making that asset usable.

Question-28: What is the salvage value of an asset?

Answer: The salvage value of an asset refers to the estimated value of an asset at the end of its lifespan.

Question-29: What is the depreciable value of an asset?

Answer: The depreciable value of an asset refers to the value obtained by deducting the salvage value of the assets from the cost price of the assets.

Question-30: What is a useful life of an asset?

Answer: An asset’s useful life is an estimate of an asset’s expected productive life, also called service life.

Question-31: According to which Principle Company records the plant assets at cost price?

Answer: According to the historical cost principle company records the plant assets at cost price.

Question-32: What is the formula for the Straight Line method of calculating annual depreciation?

Answer: Annual Depreciation= (Cost-Salvage Value)/Useful Life.

Question-33: How does the Straight Line method calculate the depreciation rate?

Answer: Depreciation Rate= 100%/Useful Life

Question-34: What is the formula for the units of activity method of calculating annual depreciation?

Answer: The formula for the units of activity method of calculating annual depreciation is as follows:

Depreciable Cost per Unit=Depreciable Cost/Total units of activity

Annual Depreciation Expense = Depreciable Cost per Unit X Units of activity during the year

Question-35: What is the formula for the declining balance method of calculating annual depreciation?

Answer: Annual Depreciation Expense=Book Value at beginning of year X Declining balance rate.

I hope you have a basic idea about the plant assets and their depreciation at the end of the article.

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Short Questions and Answers:

1. Introduction to Accounting
2. Transaction
3. Account
4. Double Entry System
5. Accounting Cycle
6. Journal
7. Ledger
8. Cash Book
9. Bank Reconciliation Statement
10. Trial Balance
11. Financial Statements
12. Receivables
13. Accounting Principles