MCQs On Engineering Economics

1. Who is the father of Economics?

1. Adam Smith

2. Adam Gilchrist

3. John Locke

4. None of the Above

Show me the answer

Answer: 1. Adam Smith

Explanation:

• Adam Smith is widely regarded as the father of modern economics.

• He is best known for his work "The Wealth of Nations," which laid the foundation for classical economics.

• Adam Gilchrist and John Locke are not associated with the founding of economics.

2. Who defined economics as “The practical science of the production and distribution of wealth”?

1. Adam Smith

2. J.S. Mill

3. John Locke

4. Adam Gilchrist

Show me the answer

Answer: 2. J.S. Mill

Explanation:

• J.S. Mill, a prominent economist, defined economics as the practical science of the production and distribution of wealth.

• This definition emphasizes the practical aspects of economics, focusing on how wealth is created and distributed.

• Adam Smith, John Locke, and Adam Gilchrist did not provide this specific definition.

3. The main division of economics are

1. Consumption and Production

2. Exchange and Distribution

3. All of the Above

4. None of the Above

Show me the answer

Answer: 3. All of the Above

Explanation:

• Economics is broadly divided into consumption, production, exchange, and distribution.

• These divisions cover the entire scope of economic activities, from how goods are produced to how they are consumed and distributed.

• Therefore, all the options are correct.

4. What is marginal utility?

1. The change in total utility due to one more/additional unit of consumption.

2. The level/power of satisfaction to a consumer by consuming goods and services.

3. It is the utility derived by single unit of consumption.

4. Both B and C

Show me the answer

Answer: 1. The change in total utility due to one more/additional unit of consumption.

Explanation:

• Marginal utility refers to the additional satisfaction or benefit a consumer derives from consuming one more unit of a good or service.

• It is calculated as the change in total utility divided by the change in the quantity consumed.

• The other options describe total utility or average utility, not marginal utility.

5. The elements of cost is/are

1. Material

2. Labor

3. Expenses

4. All the Above

Show me the answer

Answer: 4. All the Above

Explanation:

• The elements of cost in economics include material, labor, and expenses.

• Material costs refer to the cost of raw materials, labor costs refer to wages, and expenses include overhead costs.

• All these elements are essential in calculating the total cost of production.

6. The opportunity cost is

1. The contribution to income that is foregone by not using a limited resource in its best use

2. The cost that has already been incurred by past actions

3. Added cost that would result from increasing the rate of output by a single unit

4. None of the Above

Show me the answer

Answer: 1. The contribution to income that is foregone by not using a limited resource in its best use

Explanation:

• Opportunity cost is the value of the next best alternative that is foregone when a decision is made.

• It represents the potential benefit that is lost when one option is chosen over another.

• The other options describe sunk cost and marginal cost, not opportunity cost.

7. The Sunk Cost is

1. The contribution to income that is foregone by not using a limited resource in its best use

2. The cost that has already been incurred by past actions

3. Added cost that would result from increasing the rate of output by a single unit

4. None of the Above

Show me the answer

Answer: 2. The cost that has already been incurred by past actions

Explanation:

• Sunk cost refers to costs that have already been incurred and cannot be recovered.

• These costs should not influence future decisions, as they are irreversible.

• The other options describe opportunity cost and marginal cost, not sunk cost.

8. The Marginal Cost is

1. The contribution to income that is foregone by not using a limited resource in its best use

2. The cost that has already been incurred by past actions

3. Added cost that would result from increasing the rate of output by a single unit

4. None of the Above

Show me the answer

Answer: 3. Added cost that would result from increasing the rate of output by a single unit

Explanation:

• Marginal cost is the additional cost incurred by producing one more unit of a good or service.

• It is calculated as the change in total cost divided by the change in quantity produced.

• The other options describe opportunity cost and sunk cost, not marginal cost.

9. Compound interest is calculated as

1. $P(1+i)^{N-1} i$

2. $P(1+i)N-1 i$

3. $P(1+i)N-1$

4. None of the Above

Show me the answer

Answer: 1. $P(1+i)^{N-1} i$

Explanation:

• Compound interest is calculated using the formula $A = P(1 + i)^N$, where:

  • $A$ is the amount of money accumulated after N years, including interest.

  • $P$ is the principal amount.

  • $i$ is the annual interest rate.

  • $N$ is the number of years.

• The formula provided in option 1 is a variation of the compound interest formula.

10. The nominal interest rate is

1. The periodic interest rate multiplied by the number of periods per year

2. The interest rate that would have earned the same amount of interest in one year

3. Both of the Above

4. None of the Above

Show me the answer

Answer: 1. The periodic interest rate multiplied by the number of periods per year

Explanation:

• The nominal interest rate is the stated interest rate on a loan or investment, not adjusted for inflation or compounding.

• It is calculated by multiplying the periodic interest rate by the number of periods per year.

• The other options describe the effective interest rate, not the nominal interest rate.

11. You lend Rs 100 for 3 years at 10% interest compounded annually. How much would you earn interest and get at the end of the three years?

1. Rs. 123.10

2. Rs. 133.10

3. Rs. 113.10

4. Rs. 143.10

Show me the answer

Answer: 2. Rs. 133.10

Explanation:

• The formula for compound interest is $A = P(1 + r)^n$, where:

  • $A$ is the amount after interest.

  • $P$ is the principal amount (Rs 100).

  • $r$ is the annual interest rate (10% or 0.10).

  • $n$ is the number of years (3).

• Plugging in the values: $A = 100(1 + 0.10)^3 = 100(1.331) = 133.10$.

• Therefore, the total amount after 3 years is Rs. 133.10.

12. Time value of money indicates that

1. A dollar received today is worth more than a dollar received in the future

2. A dollar received today is worth less than a dollar received in the future

3. There is no difference in the value of money obtained today and tomorrow

4. None of the Above

Show me the answer

Answer: 1. A dollar received today is worth more than a dollar received in the future

Explanation:

• The time value of money (TVM) principle states that money available today is worth more than the same amount in the future due to its potential earning capacity.

• This is because money can earn interest or be invested, generating more money over time.

• Therefore, a dollar received today is more valuable than a dollar received in the future.

13. Which of the following best describes the concept of time value of money?

1. Money is worth more in the present than in the future

2. Money is worth more in the future than in the present

3. Money has the same value regardless of when it is received

4. Money has no value unless it is invested

Show me the answer

Answer: 1. Money is worth more in the present than in the future

Explanation:

• The time value of money (TVM) principle emphasizes that money available today is worth more than the same amount in the future.

• This is because money can be invested or earn interest, increasing its value over time.

• The other options do not accurately describe the concept of TVM.

14. Which of the following is NOT a factor in the time value of money?

1. Interest Rate

2. Time Period

3. Inflation

4. Tax Rate

Show me the answer

Answer: 4. Tax Rate

Explanation:

• The time value of money (TVM) is influenced by factors such as interest rate, time period, and inflation.

• Tax rate, while important in financial planning, is not a direct factor in the calculation of TVM.

• Therefore, tax rate is not considered in the time value of money.

15. What is the formula for calculating future value?

1. $PV = FV / (1 + r)^n$

2. $FV = PV \times (1 + r)^n$

3. $FV = PV / (1 + r)^n$

4. $PV = FV \times (1 + r)^n$

Show me the answer

Answer: 2. $FV = PV \times (1 + r)^n$

Explanation:

• The future value (FV) formula calculates the value of an investment at a future date based on the present value (PV), interest rate (r), and time period (n).

• The correct formula is $FV = PV \times (1 + r)^n$.

• The other options either represent the present value formula or are incorrect variations.

16. Which of the following is a measure of the rate of return on an investment?

1. Present value

2. Future value

3. Net present value

4. Internal rate of return

Show me the answer

Answer: 4. Internal rate of return

Explanation:

• The internal rate of return (IRR) is a measure of the profitability of an investment.

• It represents the discount rate at which the net present value (NPV) of an investment becomes zero.

• Present value, future value, and net present value are not measures of the rate of return.

17. What will be the relationship between annual nominal rate of interest and annual effective rate of interest, if frequency of compounding is greater than one?

1. Effective rate > Nominal rate

2. Effective rate < Nominal rate

3. Effective rate = Nominal rate

4. None of the Above

Show me the answer

Answer: 1. Effective rate > Nominal rate

Explanation:

• When the frequency of compounding is greater than one, the effective annual rate (EAR) will be higher than the nominal annual rate.

• This is because compounding more frequently results in more interest being earned on interest.

• Therefore, the effective rate is greater than the nominal rate.

18. Key factor in determining the time value of money?

1. Discount rate

2. Commission

3. Interest rate

4. All of the Above

Show me the answer

Answer: 3. Interest rate

Explanation:

• The interest rate is a key factor in determining the time value of money (TVM).

• It affects the present value and future value of money by determining how much money can grow over time.

• While discount rate and commission are important, they are not the primary factors in TVM.

19. Which of the following is incorrect?

1. The cost of capital refers to the required return needed on a project or investment to make it worthwhile.

2. The discount rate is the interest rate used to calculate the present value of future cash flows from a project or investment.

3. Many companies calculate their WACC and use it as their discount rate when budgeting for a new project.

4. None of the Above

Show me the answer

Answer: 4. None of the Above

Explanation:

• All the statements are correct:

  • The cost of capital is the required return for an investment.

  • The discount rate is used to calculate the present value of future cash flows.

  • Companies often use the Weighted Average Cost of Capital (WACC) as the discount rate.

• Therefore, none of the statements are incorrect.

20. Which of the following is correct?

1. The value of money decreases over time due to inflation

2. The time value of money is used to evaluate the present value of future cash flows

3. The time value of money is used in discounted cash flow analysis and investment decision-making.

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• All the statements are correct:

  • Inflation reduces the value of money over time.

  • The time value of money is used to evaluate the present value of future cash flows.

  • It is also used in discounted cash flow analysis and investment decision-making.

• Therefore, all the options are correct.

21. The relationship between effective interest rate 'i' and nominal interest rate 'r' is

1. $i = (1 + r/M)^M - 1$

2. $i = (1 + M/r)^M - 1$

3. $i = (1 + r/M)^M$

4. $i = (1 + r/M) - 1$

Show me the answer

Answer: 1. $i = (1 + r/M)^M - 1$

Explanation:

• The effective interest rate (i) is calculated using the nominal interest rate (r) and the number of compounding periods per year (M).

• The formula is $i = (1 + r/M)^M - 1$.

• This formula accounts for the effect of compounding on the nominal rate.

22. Beginning of period cash flows are

1. Rent

2. Lease

3. Insurance payments

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• Beginning of period cash flows include payments made at the start of a period, such as rent, lease, and insurance payments.

• These are typically recurring payments that are due at the beginning of the billing cycle.

• Therefore, all the options are correct.

23. End of period cash flows are

1. O & M

2. Salvages and Revenues

3. Overhauls

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• End of period cash flows include operational and maintenance (O&M) costs, salvage values, revenues, and overhauls.

• These are typically recorded at the end of a financial period.

• Therefore, all the options are correct.

24. Which of the following are used in engineering economics for comparing alternatives?

1. Cost-Benefit Analysis

2. Net Present Value and Internal Rate of Return

3. Benefit Cost Ratio and Pay Back Period

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• Engineering economics uses various methods to compare alternatives, including:

  • Cost-Benefit Analysis

  • Net Present Value (NPV) and Internal Rate of Return (IRR)

  • Benefit Cost Ratio and Pay Back Period

• All these methods help in making informed decisions about projects and investments.

25. If NPV is Positive, this means

1. The project is expected to generate more cash flows than the initial investment

2. The project is not expected to generate enough cash-flows to cover the initial investment

3. Both of the Above

4. None of the Above

Show me the answer

Answer: 1. The project is expected to generate more cash flows than the initial investment

Explanation:

• A positive Net Present Value (NPV) indicates that the present value of future cash flows is greater than the initial investment.

• This means the project is expected to be profitable and generate more cash flows than the cost of the investment.

• Therefore, the project is considered financially viable.

26. The relationship between Economic value added and the net present value is considered as

1. Valued Relationship

2. Economic Relationship

3. Direct Relationship

4. Inverse Relationship

Show me the answer

Answer: 3. Direct Relationship

Explanation:

• Economic Value Added (EVA) and Net Present Value (NPV) have a direct relationship.

• Both measures focus on the value created by a project or investment.

• A higher NPV typically corresponds to a higher EVA, indicating greater value creation.

27. Which of the following is correct?

1. Inflation is difficult to measure because the prices of different goods and services do not increase or decrease by the same amount

2. Inflation rates are measured by Wholesale Price Index (WPI), Producer's Price Index (PPI)

3. Inflation rates are measured by Consumer's Price Index (CPI)

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• All the statements are correct:

  • Inflation is difficult to measure due to varying price changes across goods and services.

  • Inflation rates are measured using indices like WPI, PPI, and CPI.

• Therefore, all the options are correct.

28. Full form of MARR is

1. Minimum Attractive Rate of Return

2. Minimum Attract Rate of Return

3. Minimum Attractive Rate of Reunion

4. None of the Above

Show me the answer

Answer: 1. Minimum Attractive Rate of Return

Explanation:

• MARR stands for Minimum Attractive Rate of Return.

• It is the minimum rate of return that an investor or company expects to earn on an investment.

• The other options are incorrect.

29. MARR is determined by taking which of the following considerations

1. The amount of money available for investment, and the source and cost of these funds

2. The number of good projects available for investment and their purpose

3. The type of organization involved

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• The Minimum Attractive Rate of Return (MARR) is determined by considering:

  • The amount of money available for investment and its cost.

  • The number and purpose of available projects.

  • The type of organization and its financial goals.

• Therefore, all the options are correct.

30. The MARR is

1. The least interest rate among all alternative projects

2. An interest rate that must be earned for a project to be accepted

3. An interest rate that allows an investor to recoup the investment

4. All of the Above

Show me the answer

Answer: 2. An interest rate that must be earned for a project to be accepted

Explanation:

• The Minimum Attractive Rate of Return (MARR) is the minimum rate of return that a project must achieve to be considered acceptable.

• It is used as a benchmark to evaluate the profitability of projects.

• The other options do not accurately describe MARR.

31. Which of the following best describes the purpose of a minimum attractive rate of return?

1. To determine the acceptable level of risk for a project

2. To calculate the internal rate of return for an investment

3. To set the required rate of return for a lender to loan money

4. To establish a minimum level of profitability for a company to undertake an investment

Show me the answer

Answer: 4. To establish a minimum level of profitability for a company to undertake an investment

Explanation:

• The Minimum Attractive Rate of Return (MARR) is used to set a minimum profitability threshold for investments.

• It ensures that only projects that meet or exceed this threshold are considered.

• The other options describe other financial concepts, not MARR.

32. What is the significance of the minimum attractive rate of return for a company?

1. It determines the maximum price the company is willing to pay for an asset

2. It sets the lower limit for the rate of return the company will accept from an investment

3. It determines the minimum interest rate the company will pay on loans

4. It sets the minimum price the company will sell its stock for

Show me the answer

Answer: 2. It sets the lower limit for the rate of return the company will accept from an investment

Explanation:

• The Minimum Attractive Rate of Return (MARR) sets the minimum rate of return that a company expects from an investment.

• It acts as a benchmark to evaluate the profitability of potential projects.

• The other options do not accurately describe the significance of MARR.

33. Which of the following is not correct about Payback period?

1. Number of years required to recover the initial investment is called payback period.

2. It focus on liquidity

3. It is a measure of profitability

4. It does not consider cash flows of entire life of project

Show me the answer

Answer: 3. It is a measure of profitability

Explanation:

• The payback period measures the time required to recover the initial investment, focusing on liquidity.

• It does not measure profitability, as it ignores cash flows beyond the payback period.

• Therefore, the statement that it is a measure of profitability is incorrect.

34. The net initial investment is divided by uniform increasing in future cash flows to calculate

1. Discounting Period

2. Investment Period

3. Earning Period

4. Payback Period

Show me the answer

Answer: 4. Payback Period

Explanation:

• The payback period is calculated by dividing the net initial investment by the uniform annual cash flows.

• It measures the time required to recover the initial investment.

• The other options do not describe this calculation.

35. Which of the statement is true?

1. The payback period is simple to calculate and understand.

2. The payback period ignores cash flows after the payback point has been reached

3. It does not takes account of the time value of money

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• All the statements are true:

  • The payback period is simple to calculate and understand.

  • It ignores cash flows beyond the payback period.

  • It does not consider the time value of money.

• Therefore, all the options are correct.

36. Which of the following is demerits of payback period?

1. It ignores the time value of money

2. Does not consider cash flows of entire life of project

3. Both A and B

4. Focus on liquidity

Show me the answer

Answer: 3. Both A and B

Explanation:

• The payback period has several demerits:

  • It ignores the time value of money.

  • It does not consider cash flows beyond the payback period.

• Therefore, both options A and B are correct.

37. In simple payback period of uniform cash flow, if Calculated Payback Period < Standard Payback Period

1. Accept the Project

2. Reject the Project

3. Accept/Reject the project

4. Depends

Show me the answer

Answer: 1. Accept the Project

Explanation:

• If the calculated payback period is less than the standard payback period, the project is considered acceptable.

• This indicates that the initial investment will be recovered within the desired timeframe.

• Therefore, the project should be accepted.

38. Internal Rate of Return is

1. Rate at which discounted cash inflow is more than discounted cash outflow

2. Rate at which discounted cash inflow is less than discounted cash outflow

3. Rate at which discounted cash inflow is equal to the discounted cash outflow

4. None of the Above

Show me the answer

Answer: 3. Rate at which discounted cash inflow is equal to the discounted cash outflow

Explanation:

• The Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of a project becomes zero.

• At this rate, the discounted cash inflows equal the discounted cash outflows.

• Therefore, the correct answer is option 3.

39. Which of the following statements is not correct regarding the internal rate of return (IRR) method?

1. Each project has a unique internal rate of return.

2. The internal rate of return does not consider the time value of money.

3. The internal rate of return is rarely used by firms today because of the ease at which net present value is calculated.

4. All of the Above

Show me the answer

Answer: 2. The internal rate of return does not consider the time value of money.

Explanation:

• The Internal Rate of Return (IRR) method does consider the time value of money.

• It calculates the discount rate at which the NPV of a project becomes zero.

• Therefore, the statement that IRR does not consider the time value of money is incorrect.

40. What is the interest rate of return used for in financial analysis?

1. To determine the minimum acceptable return on an investment

2. To evaluate the profitability of a project or investment

3. To set the minimum interest rate a company will pay on loans

4. To determine the maximum price a company is willing to pay for an asset

Show me the answer

Answer: 2. To evaluate the profitability of a project or investment

Explanation:

• The interest rate of return is used to evaluate the profitability of a project or investment.

• It helps in determining whether the expected returns justify the investment.

• The other options describe other financial concepts, not the interest rate of return.

41. The interest rate of return is an important factor in:

1. Determining the value of a stock

2. Deciding whether to invest in a company

3. Setting the minimum interest rate a company will pay on loans

4. Both A and B

Show me the answer

Answer: 4. Both A and B

Explanation:

• The interest rate of return is important in:

  • Determining the value of a stock.

  • Deciding whether to invest in a company.

• It is not directly related to setting the minimum interest rate on loans.

• Therefore, both options A and B are correct.

42. The external rate of return (ERR) refers to

1. The rate of return generated by a project or investment compared to the cost of the capital used to finance it

2. The rate of return generated by a project or investment compared to the market rate of return

3. The rate of return generated by a project or investment compared to the inflation rate

4. The rate of return generated by a project or investment compared to the government benchmark rate

Show me the answer

Answer: 2. The rate of return generated by a project or investment compared to the market rate of return

Explanation:

• The External Rate of Return (ERR) compares the rate of return of a project or investment to the market rate of return.

• It helps in assessing the performance of the investment relative to the market.

• The other options do not accurately describe ERR.

43. Break even analysis is

1. Point at which revenue is equal to cost

2. Point where no profit is made nor any loss is incurred

3. Both of the Above

4. None of the Above

Show me the answer

Answer: 3. Both of the Above

Explanation:

• Break-even analysis identifies the point at which total revenue equals total costs.

• At this point, no profit or loss is incurred.

• Therefore, both options 1 and 2 are correct.

44. Which of the following are equivalent worth methods?

1. Present Worth

2. Future Worth

3. Annual Worth

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• Equivalent worth methods include Present Worth, Future Worth, and Annual Worth.

• These methods are used to compare the value of cash flows over time.

• Therefore, all the options are correct.

45. The future worth is calculated as

1. $FW(i\%) = \sum_{k=0}^{N} F_k (1+i)^{N-k}$

2. $FW(i\%) = \sum_{k=0}^{N} F_k (1-i)^{N-k}$

3. $FW(i\%) = \sum_{k=0}^{N} F_k (1+i)^{k-N}$

4. $FW(i\%) = \sum_{k=0}^{N} F_k (1+i)^{k-k}$

Show me the answer

Answer: 1. $FW(i\%) = \sum_{k=0}^{N} F_k (1+i)^{N-k}$

Explanation:

• The future worth (FW) is calculated by summing the future values of all cash flows, discounted at the interest rate (i).

• The correct formula is $FW(i\%) = \sum_{k=0}^{N} F_k (1+i)^{N-k}$.

• The other options are incorrect variations of the formula.

46. The Annual Worth is calculated as

1. $E-R-CR(1\%)$

2. $R-E-CR(1\%)$

3. $I-E-CR(1\%)$

4. $R-I-CR(1\%)$

Show me the answer

Answer: 2. $R-E-CR(1\%)$

Explanation:

• The Annual Worth (AW) is calculated by subtracting expenses (E) and capital recovery (CR) from revenues (R).

• The formula is $AW = R - E - CR(1\%)$.

• This formula helps in determining the net annual benefit of a project or investment.

47. What is Depreciation?

1. Decrease in the value of assets due to their use in production process or reduction in market value or obsolescence

2. Possession of assets over liabilities

3. Both of the Above

4. None of the Above

Show me the answer

Answer: 1. Decrease in the value of assets due to their use in production process or reduction in market value or obsolescence

Explanation:

• Depreciation refers to the decrease in the value of an asset over time due to wear and tear, usage, or obsolescence.

• It is a non-cash expense that is recorded to reflect the reduction in the asset's value.

• Possession of assets over liabilities is not related to depreciation.

48. The main objective of Depreciation is?

1. To reduce tax

2. To calculate net profit

3. To show previous profit

4. All of the Above

Show me the answer

Answer: 2. To calculate net profit

Explanation:

• The main objective of depreciation is to allocate the cost of an asset over its useful life, which helps in calculating the net profit accurately.

• While depreciation can reduce taxable income, its primary purpose is not tax reduction.

• Showing previous profit is not the main objective of depreciation.

49. Depreciation is generally generated due to

1. Decrease in the value of Assets

2. Decrease in Capital

3. Wear and Tear

4. All of the Above

Show me the answer

Answer: 3. Wear and Tear

Explanation:

• Depreciation is primarily caused by the wear and tear of an asset due to its use in the production process.

• While a decrease in the value of assets and capital can occur, they are not the primary reasons for depreciation.

• Therefore, wear and tear is the main cause of depreciation.

50. The main purpose of depreciation are

1. Replacement of assets, exact pricing of the product

2. Prevent from consuming capital, reduction of tax liability directing investment towards intended area

3. Providing source of finance

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• Depreciation serves multiple purposes, including:

  • Replacement of assets.

  • Exact pricing of products.

  • Preventing the consumption of capital.

  • Reducing tax liability.

  • Directing investment towards intended areas.

  • Providing a source of finance.

• Therefore, all the options are correct.

51. Types of depreciation are

1. Tax depreciation

2. Economic depreciation

3. Both of the Above

4. None of the Above

Show me the answer

Answer: 3. Both of the Above

Explanation:

• Depreciation can be classified into tax depreciation and economic depreciation.

• Tax depreciation is used for tax purposes, while economic depreciation reflects the actual decrease in the value of an asset.

• Therefore, both types are valid.

52. Nepal exercised various rates of depreciation system prescribed by

1. Income tax act, 2002

2. Income tax act, 2003

3. Income tax act, 2004

4. Income tax act, 2005

Show me the answer

Answer: 1. Income tax act, 2002

Explanation:

• Nepal follows the depreciation rates prescribed by the Income Tax Act, 2002.

• This act outlines the rules and rates for calculating depreciation for tax purposes.

• The other options are incorrect as they refer to different years.

53. Depreciation is not allowed on which of the following asset types

1. Trading stock

2. Business asset

3. Non-business chargeable asset

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• Depreciation is not allowed on trading stock, business assets, or non-business chargeable assets.

• These assets are either not subject to depreciation or are treated differently under tax laws.

• Therefore, all the options are correct.

54. Types of pool for depreciation

1. Pool A and Pool B

2. Pool C and Pool D

3. Pool E

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• Depreciation pools are categories used to group assets with similar useful lives.

• The pools include Pool A, Pool B, Pool C, Pool D, and Pool E.

• Therefore, all the options are correct.

55. Furniture and Fixture, Office Equipment and computer falls on which pool group

1. Pool A

2. Pool B

3. Pool C

4. Pool D

Show me the answer

Answer: 2. Pool B

Explanation:

• Furniture, fixtures, office equipment, and computers are typically classified under Pool B for depreciation purposes.

• This pool has a specific depreciation rate as per the Income Tax Act.

• Therefore, the correct answer is Pool B.

56. Automobiles, bus and mini bus falls on which pool group

1. Pool A

2. Pool B

3. Pool C

4. Pool D

Show me the answer

Answer: 3. Pool C

Explanation:

• Automobiles, buses, and minibuses are typically classified under Pool C for depreciation purposes.

• This pool has a specific depreciation rate as per the Income Tax Act.

• Therefore, the correct answer is Pool C.

57. Rate of Depreciation as per Income Tax Act 2058 for Pool A

1. 5 %

2. 10 %

3. 15 %

4. 20 %

Show me the answer

Answer: 1. 5 %

Explanation:

• As per the Income Tax Act 2058, the depreciation rate for Pool A is 5%.

• This rate applies to assets with a long useful life, such as buildings.

• Therefore, the correct answer is 5%.

58. Rate of Depreciation as per Income Tax Act 2058 for Pool B

1. 10 %

2. 20 %

3. 25 %

4. 30 %

Show me the answer

Answer: 3. 25 %

Explanation:

• As per the Income Tax Act 2058, the depreciation rate for Pool B is 25%.

• This rate applies to assets such as furniture, fixtures, and office equipment.

• Therefore, the correct answer is 25%.

59. Rate of Depreciation as per Income Tax Act 2058 for Pool C

1. 5 %

2. 10 %

3. 15 %

4. 20 %

Show me the answer

Answer: 4. 20 %

Explanation:

• As per the Income Tax Act 2058, the depreciation rate for Pool C is 20%.

• This rate applies to assets such as automobiles, buses, and minibuses.

• Therefore, the correct answer is 20%.

60. Rate of Depreciation as per Income Tax Act 2058 for Pool D

1. 5 %

2. 10 %

3. 15 %

4. 20 %

Show me the answer

Answer: 3. 15 %

Explanation:

• As per the Income Tax Act 2058, the depreciation rate for Pool D is 15%.

• This rate applies to assets such as machinery and equipment.

• Therefore, the correct answer is 15%.

61. The Accelerated rate of depreciation is calculated by adding

1. 1/3 of its own rate to individual pool of assets

2. 2/3 of its own rate to individual pool of assets

3. 1/5 of its own rate to individual pool of assets

4. 2/5 of its own rate to individual pool of assets

Show me the answer

Answer: 1. 1/3 of its own rate to individual pool of assets

Explanation:

• The accelerated rate of depreciation is calculated by adding 1/3 of the standard depreciation rate to the individual pool of assets.

• This allows for faster depreciation of assets, reducing taxable income in the early years of an asset's life.

• Therefore, the correct answer is 1/3 of its own rate.

62. Can we claim depreciation on all depreciable assets?

1. Yes

2. No

3. May be

4. Depends on situation

Show me the answer

Answer: 2. No

Explanation:

• Depreciation can only be claimed on assets that are used for business purposes and have a determinable useful life.

• Assets such as land or trading stock are not depreciable.

• Therefore, the correct answer is No.

63. The criteria that need to be fulfill to claim depreciation for tax purposes?

1. The Asset must be owned by the person claiming the depreciation

2. The asset must be used during the income year

3. The asset should be a fixed asset and asset must be used for the production of income

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• To claim depreciation for tax purposes, the asset must be owned by the taxpayer, used during the income year, and be a fixed asset used for income production.

• All these criteria must be met to qualify for depreciation.

• Therefore, all the options are correct.

64. What is the current corporate tax rate in Nepal for the fiscal year 2022/23?

1. 20%

2. 25%

3. 30%

4. 15%

Show me the answer

Answer: 3. 30%

Explanation:

• The current corporate tax rate in Nepal for the fiscal year 2022/23 is 30%.

• This rate applies to the taxable income of corporations and businesses.

• Therefore, the correct answer is 30%.

65. Which of the following entities are subject to corporate tax in Nepal?

1. Public limited companies

2. Private limited companies

3. Partnerships

4. All of the Above

Show me the answer

Answer: 4. All of the Above

Explanation:

• Public limited companies, private limited companies, and partnerships are all subject to corporate tax in Nepal.

• These entities are required to pay tax on their taxable income as per the Income Tax Act.

• Therefore, all the options are correct.

66. Which of the following expenses can be deducted from a company's taxable income in Nepal?

1. Salary and wages

2. Rent and utilities

3. Depreciation and amortization

4. All of the above

Show me the answer

Answer: 4. All of the above

Explanation:

• Expenses such as salary and wages, rent and utilities, and depreciation and amortization can be deducted from a company's taxable income in Nepal.

• These deductions help in reducing the taxable income and, consequently, the tax liability.

• Therefore, all the options are correct.

67. What is the penalty for late filing of corporate tax returns in Nepal?

1. 0.5% of the tax due per month

2. 1% of the tax due per month

3. 1.5% of the tax due per month

4. 2% of the tax due per month

Show me the answer

Answer: 2. 1% of the tax due per month

Explanation:

• The penalty for late filing of corporate tax returns in Nepal is 1% of the tax due per month.

• This penalty is imposed to encourage timely filing of tax returns.

• Therefore, the correct answer is 1% of the tax due per month.

68. What is the current VAT rate in Nepal for the fiscal year 2022/23?

1. 10%

2. 13%

3. 18%

4. 22%

Show me the answer

Answer: 2. 13%

Explanation:

• The current VAT rate in Nepal for the fiscal year 2022/23 is 13%.

• This rate applies to the supply of goods and services in Nepal.

• Therefore, the correct answer is 13%.