Chapter : 7 

Depreciation, Provisions and Reserves

 Questions for Practice 

Short Answers 

1. What is ‘Depreciation’? 

2. State briefly the need for providing depreciation. 

3. What are the causes of depreciation? 

4. Explain basic factors affecting the amount of depreciation. 

5. Distinguish between straight line method and written down value method of calculating depreciation. 

6. “In case of a long term asset, repair and maintenance expenses are expected to rise in later years than in earlier year”. Which method is suitable for charging depreciation if the management does not want to increase burden on profits and loss account on account of depreciation and repair. 

7. What are the effects of depreciation on profit and loss account and balance sheet? 

8. Distinguish between ‘provision’ and ‘reserve’ . 

9. Give four examples each of ‘provision’ and ‘reserves’. 

10. Distinguish between ‘revenue reserve’ and ‘capital reserve’. 

11. Give four examples each of ‘revenue reserve’ and ‘capital reserves’. 

12. Distinguish between ‘general reserve’ and ‘specific reserve’. 

13. Explain the concept of ‘secret reserve’.