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GCE Financial Accounting 1990 Question 48

Question 48

Depreciation

When precision for depreciation account is maintained, the annual charge for depreciation shall be

  1. A.debited to the Provision Account and credited to Profit and Loss Account
  2. B.debited to the Asset Account and credited to Profit and Loss Account
  3. C.debited to Profit and Loss Account and credited to the Provision Account
  4. D.debited to the Asset Account and credited to the Provision Account
  5. E.debited to the Provision Account and credited to the Asset Account.
Show the answer and explanation

Answer: C (debited to Profit and Loss Account and credited to the Provision Account)

Explanation

With a provision account the asset stays at cost; each year's charge is debited to profit and loss and credited to the provision.