Chapter 11: Depreciation, Impairments, and Depletion

Question 1

What is depreciation?

Answer 1

System used to allocate costs of property, plant, and equipment to accounting periods

Question 2

Depreciation calculation

Answer 2

Depreciation = Rate x Base

Question 3

Straight Line Depreciation Method

Answer 3

Most common, allowed for taxes but rarely used

Question 4

Straight Line Depreciation Rate

Answer 4

1/useful life

Question 5

Straight Line Depreciation Base

Answer 5

Cost - salvage

Question 6

Straight Line Depreciation Calculation

Answer 6

(Cost - Salvage)/Useful Life

Question 7

Sum-of-the-Years Method Depreciation

Answer 7

Accelerated Depreciation method, must be used for full 12 months

Question 8

Sum-of-the-Years Depreciation Rate

Answer 8

(UL-(year-1))/(Useful Life(Useful Life +1)/2)

Question 9

Sum-of-the-Years Depreciation Base

Answer 9

Cost - Salvage (straight-line base)

Question 10

Double Declining Balance Depreciation Method

Answer 10

Most accelerated Method

Question 11

Double-Declining Balance Depreciation Rate

Answer 11

2/Useful Life

Question 12

Double Declining Balance Depreciation Base

Answer 12

Book value, Cost - Accumulated Depreciation

Question 13

Units of Production Depreciation Method

Answer 13

As use some assets, they tend to wear out

Question 14

Units of Production Depreciation Base

Answer 14

Number of units produced, hours used, miles driven etc. for current period

Question 15

Units of Production Depreciation Rate

Answer 15

(Cost-Salvage)/Estimated Useful Life in Units

Question 16

Partial Year Depreciation

Answer 16

Record depreciation for number of months held divided by 12 including months where asset was purchased prior to or sold after 15th of month (do not apply for production methods

Question 17

Recording of Depreciation

Answer 17

Increases expenses with depreciation expense, decreases assets by increasing contra asset accumulated depreciation

Question 18

Depreciation methods allowed for taxes

Answer 18

straight line method (half year convention in first year), Modified Accelerated Cost Recovery System (MACRS)

Question 19

MACRS

Answer 19

tax life mandated, cost recovery on accelerated basis, salvage value is 0

Question 20

Depletion

Answer 20

Way of allocating cost of wasting assets, systematic allocation of cost of natural resources to periods that benefit from use (similar to units of production method)

Question 21

Depletion Base

Answer 21

Number of units extracted during current period

Question 22

Depletion Rate

Answer 22

(Total Cost - Residual Value)/Estimated Units Available

Question 23

Recording of Depletion

Answer 23

Increases asset (inventory) rather than expense account

Question 24

Recording of Depletion When Asset Sold

Answer 24

Inventory increases COGS

Question 25

What is included in cost of assets subject to depletion?

Answer 25

Acquisition costs, Exploration costs (full cost approach - added to cost of all natural resources, successful efforts - use money included in actually finding natural resource), Development Costs (if can seperate asset from land, not included), and Restoration costs