Chapter 11: Depreciation, Impairment, & Depletion

Question 1

Depreciation

Answer 1

Systematic and rational allocation of cost (NOT valuation)

Question 2

Requirements of Computation of Depreciation

Answer 2

1.) estimate of useful service life of asset 2.) estimate of depreciation base (cost-salvage value) 3.) selection of a depreciation method

Question 3

Depletion

Answer 3

Cost allocation for wasting assets

Question 4

Depletion Base

Answer 4

Acquisition cost + exploration costs + intangible development costs - residual value

Question 5

Depletion Units

Answer 5

Estimate of the number of units to be extracted

Question 6

Unit Depletion Rate

Answer 6

Depletion base / Depletion units

Question 7

Group and Composite Depreciation Methods

Answer 7

To depreciate a collection of assets using a single depreciation schedule (assets similar in group but different in composite)

Question 8

Group or Composite Life

Answer 8

Total depreciable cost / Total annual straight-line depreciation

Question 9

Group or Composite Rate

Answer 9

Total annual straight-line depreciation / Total cost

Question 10

Two Rules of Group/Composite Depreciation

Answer 10

1.) No gains or losses are recognized on the sale of individual assets until the group or composite is completely depreciated. 2.) New group or composite life and rate are computed if a new asset is added.

Question 11

Impairment

Answer 11

Occurs when an entity does NOT expect to recover the carrying value of the asset (Restoration of loss is permitted for assets held for resale, not operating assets)