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प्रश्न
State the limitations of straight-line method of depreciation.
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उत्तर
Following are the limitations of straight-line method of depreciation:
- Ignores the actual use of the asset:
Under this method, a fixed amount of depreciation is provided on each asset by applying the predetermined rate of depreciation on its original cost. But, the actual use of the asset is not considered in the computation of depreciation. - Ignores the interest factor:
This method does not take into account the loss of interest on the amount invested in the asset. That is, the amount would have earned interest, had it been invested outside the business is not considered. - Total charge on the assets will be more when the asset becomes older:
With the passage of time, the cost of maintenance of an asset goes up. Hence, the amount of depreciation and cost of maintenance put together is less in the initial period and goes up year after year. But, this method does not consider this. - Difficulty in the determination of scrap value:
It may be quite difficult to assess the true scrap value of the asset after a long period say 10 or 15 years after the date of its installation.
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संबंधित प्रश्न
Answer in One Sentence only:
What is a ‘Scrap Value’ of an asset?
Write the word/term/phrase which can substitute the following statement:
The type of asset on which depreciation is charged.
Write the word/term/phrase which can substitute the following statement:
Expenses incurred for fixation of the new asset to bring it in working condition.
Select the most appropriate answer from the alternatives given below and rewrite the sentence:
Depreciation is charged only on ______ assets.
Do you agree or disagree with the following statement:
Under written down value method the Depreciation curve slopes parallel to 'X' axis.
Complete the following sentence:
Wages paid for Installation/fixation of Machinery is debited to ______ account.
Furniture was purchased for ₹ 1,00,000 on 1.7.2016. It is expected to last for 5 years. Estimated scrap at the end of five years is ₹ 10,000. Find out the rate of depreciation under the straight-line method.
On 1st April 2015, Farid of Nasik purchased a Motor Car for ₹ 55,000. The scrap value of the Motor Car was estimated at ₹ 10,000 and its estimated life is 10 years. The Registration charge for the Motor Car was ₹ 5,000.
Show Motor Car Account for first four years, assuming that the books of accounts are closed on 31st March every year.
A factory’s machine remains idle for several months due to maintenance breakdowns. Which method ensures that depreciation is not overcharged during these idle periods?
The Sum-of-the-Years’-Digits Method results in:
