Chapter 10 Flashcards
What is book value/carrying value
Cost - Accumulated depreciation
What is the definition of depreciation
The process of allocating the cost of a tangible asset to expense in a systematic and rational manner
How do you calculate the depreciable base
Cost - Salvage Value
What is the assets useful life
Service life (not physical life)
What is the concern with the activity method for depreciation
no depreciation is taken when not being used
What is the equation for activity method when calculating depreciation
(Depreciable base/ Estimation) X Actual Used
How do you calculate depreciation expense for straight-line method
Depreciable base/ Useful life X portion of year used
Why would a company use a decreasing charge method for depreciation
- Companies should recognize more depreciation in earlier years because the asset is more productive
Equation for Sum of Years Digits
Years Remaining/ Sum of Years Digit (n!) X Depreciable base
Declining Balance Method
Book Value (ignore salvage) X Rate
When is group vs composite method used
Group: When assets are similar in nature
Composite: when assets are dissimilar and have different useful lives
What are the two tests done for impairments?
1.) Recoverability Test
2.) Impairment Loss
What is the recoverability test when finding impairments
Compare Undiscounted Future Cash Flows to the carrying value and if cash flows are less then it is impaired
How do you measure the impairment loss
Carrying value - Fair Value
What are the indicators of impairment
1.) Significant decrease in the fair value of an asset
2.) Significant change in the manner in which the asset is used
3.) Change in legal factors or in the business climate that affect it
4.) Accumulation of costs in excess of the original amount
5.) Projection of a loss
