Depreciation – Types & Solved MCQs with Detailed answers (accounting exam preparation)

Depreciation MCQs with answers
Depreciation Formula (General):

Depreciation = (Cost of Asset – Scrap Value) ÷ Useful Life

Where:

Cost of Asset = Purchase price + installation charges + transportation etc.

Scrap Value (Residual Value) = Expected value at end of life.

Useful Life = Estimated time period the asset will be used.



Types of Depreciation Methods:

1. Straight Line Method (SLM)

Formula:

Depreciation = (Cost – Scrap Value) ÷ Useful Life

Equal depreciation every year.



2. Written Down Value (WDV) / Diminishing Balance Method

Formula:

Depreciation = Opening Book Value × Rate of Depreciation (%)

Depreciation decreases every year.



3. Sum-of-the-Years-Digits (SYD) Method

Formula:

Depreciation = (Remaining Life ÷ Sum of Years) × (Cost – Scrap Value)

Accelerated depreciation.



4. Units of Production Method

Formula:

Depreciation per unit = (Cost – Scrap Value) ÷ Estimated Units of Output

, Based on production or usage.



5. Double Declining Balance Method (Accelerated WDV)

Formula:

Depreciation = 2 × Straight Line Rate × Book Value at Beginning of Year



MCQ 1

Which depreciation method results in higher depreciation expense in early
years and lower in later years?

A) Straight Line Method

B) Written Down Value Method

C) Units of Production Method

D) None of the above

Answer: B) Written Down Value Method




MCQ 2

A machine is purchased for ₹1,00,000. Its scrap value is ₹10,000 and useful
life is 5 years.

Under Straight Line Method, what will be the book value at the end of the 3rd
year?

A) ₹46,000

B) ₹52,000

C) ₹58,000

D) ₹40,000

Solution:

Depreciation = (1,00,000 – 10,000) ÷ 5 = ₹18,000 per year

After 3 years → 1,00,000 – (18,000 × 3) = 46,000