Chapter 4 Section 4: Depreciable Assets and Depreciation

Question 1

What requirements does IFRS have regarding composite vs. component depreciation?

Answer 1

They require component

Question 2

How are gains and losses treated under composite depreciation?

Answer 2

When an individual unit is retired, no gain or loss is recorded. It is absorbed into accumulated depreciation.

Question 3

What is the calculation for straight line depreciation?

Answer 3

Cost - salvage value/estimated useful life

Question 4

What is the calculation for sum of the year’s digits?

Answer 4

denominator = sum of the year’s digits, or n x [(n+1)/2]. this never changes.
numerator is the number of years left at the beginning of the year. Multiply cost - salvage value by that.
5 yrs in yr 1 would be 5/15

Question 5

What is the calculation for declining balance?

Answer 5

Under double declining, each year’s depreciation rate is double the straight-line rate.
Depreciation expense = 2 x (1/N) x (cost - acc dep)
Ignore salvage value - it will show up in the last year.

Question 6

`What is the calculation for units of production?

Answer 6

(cost - sv)/(estimated units or hrs) = rate per unit or hr

rate x # of units produced = depreciation expense

Question 7

What is depletion?

Answer 7

Basically, depreciation for natural resources.

Question 8

What is the main method of depletion and how does it work?

Answer 8

Cost
recoverable units/unrecovered cost - sv = base
base x units produced = depletion expense