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Understanding Financial Statements

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Question

What is the treatment of depreciation in financial statements?

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Solution

Depreciation or deterioration cost is written down from the actual value of the asset, the worth of a fixed value matches and is suitably addressed on the accounting report. On the income statement, devaluation is typically displayed as an indirect operating or working cost.

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MCQs on Depreciation

What Is Depreciation?

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Q. State whether the following Statements are True or False

1. There is need to provide depreciation if it is maintained with care.
2. Depreciation cannot be provided in case of loss in a financial year.
3. A Specific reserve can be created for any purpose.
4. Capital Reserves are not freely distributed as profits.
5. Under the written down value method depreciation is calculated on the original cost of an asset.
6. Depreciation is the process of valuation of asset.
7. Depreciation is a non-cash expense.
8. Secret reserves are disclosed in Balance Sheet.
9. General reserves is created to meet contingency liability.
10. Depreciation is charged only on fixed asset.

Q. From the following information prepare financial Statements of M/s Raj & Bros, for the year ending March 31, 2017.

			Dr Bal. (₹)		Cr Bal. (₹)
Stock (1-4-2016)			16,800	Capital	78,000
Sales Returns			8,000	Sales	3,09,000
Purchases			2,43,000	Returns Outward	5,700
Freight-in			8,600	Trade Creditors	4,800
Rent and Taxes			5,700	10% Bank Loan (1-7-2016)	24,000
Salaries			9,300	Income from Investment	3,600
Trade debtors			24,000	Discount Received	2,250
Bank interest			1,000
Printing and Advertising			14,600
Cash at bank			18,300
Discount Allowed			1,340
Investment			25,000
Furniture			3,800
General Expenses			3,610
Audit Fees			500
Insurance			800
Travelling Expenses			3,000
Plant & Machinery			30,000
Drawings			10,000
			4,27,350		4,27,350

Additional Information:-
(i) Depreciation on Plant and Machinery @ 10% p.a., a Machine has been purchased on July 01, 2016 for ₹ 12,000.
(ii) The manager is entitled to a commission of 10% of the net profit before charging such commission.
(iii) Closing stock in trade is valued at ₹ 6,000 (cost); ₹ 6,200 (Market Price).
(iv) Rent outstanding ₹ 5,000.

Q. Answer the following in brief :

What is comparative financial statement?

Q. What are limitations of financial statements?

Q. Answer the following in brief :

What do you mean by analysis of financial statements?

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