II. Very Short Answer Questions

Question 1.
What is meant by depreciation?
Answer:
The process of allocation of the relevant cost of a fixed asset over its useful life is known as depreciation. It is an allocation of cost against the benefits derived from a fixed asset during an accounting period.

III. Short Answer Questions

Question 1.
What are the objectives of providing depreciation?
Answer:

  1. To find out the true profit or loss
  2. To present the true and fair view of financial position
  3. To facilitate replacement of fixed assets
  4. To avail tax benefits
  5. To comply with legal requirements

Question 2.
What are the causes for depreciation?
Answer:

  1. Wear and tear
  2. Efflux of time
  3. Obsolescence
  4. Inadequacy for the purpose
  5. Lack of maintenance
  6. Abnormal factors