DEPLETION AND DEPRECIATION

Question 1

Defined as the decrease in the value of a property, due to the passage of time

Answer 1

Depreciation

Question 2

This must always be included in the cost of production of any product or the rendering of any service where equipment is used

Answer 2

Depreciation

Question 3

Enumerate the types of depreciation

Answer 3

1. Physical depreciation
2. Functional depreciation
3. Changes in the price levels of similar property

Question 4

It is caused by deterioration due to the effects of various chemical and mechanical factors on materials

Answer 4

Physical depreciation

Question 5

It is due to a decrease in the demand for the function of the equipment for which it was designed

Answer 5

Functional depreciation

Question 6

It depends upon the physical or economic life of the equipment and its first cost

Answer 6

Depreciation cost

Question 7

The length of time during which an equipment is capable of performing its function

Answer 7

Physical life

Question 8

The length of time during which an equipment will operate at a satisfactory profit

Answer 8

Economic life

Question 9

Sometimes called second-hand value, is defined to be the amount for which the equipment or machine can be sold as second hand

Answer 9

Salvage value

Question 10

The amount the equipment can be sold for, when disposed off as junk

Answer 10

Scrap or junk

Question 11

Payments to the ____________ should be equal to the loss in value due to depreciation

Answer 11

depreciation fund

Question 12

It is simple and is more widely used than any other methods

Answer 12

Straight-line Formula

Question 13

The basic assumption for this method is that the annual cost of depreciation is a constant percentage of the salvage value at the beginning of the year

Answer 13

Matheson Formula

Question 13

It is also relatively simple, though it will require the use of annuity tables in the absence of the electronic calculator

Answer 13

Sinking Fund Formula

Question 13

It is generally the method used for economy study purposes

Answer 13

Sinking Fund Formula

Question 14

It provides very rapid depreciation during the early years of life of property, and therefore enables faster recovery of capital

Answer 14

Sum of the Years-Digits (SYD) Method

Question 15

Depreciation during any year is charged on the basis of actual service rendered or actual units produced by the property during the year

Answer 15

Service-Output Method

Question 16

It is an approximate method, because it adds and subtracts amounts which do not occur at the same point in time

Answer 16

Straight-Line Plus Average Interest Formula

Question 17

In this method, the depreciation cost in any year is a constant ratio of the book value at the beginning of the year

Answer 17

Double-Rate Declining-Balance Method

Question 18

This is confined to assets where the major factor in depreciation is wear and tear arising from use

Answer 18

Operating Day Method

Question 19

A chance is made in the investment account when the property is retired or replaced

Answer 19

Retirement Method

Question 19

This method involves the write-off of annual depreciation determined by officers of the company who possess the required experience and technical knowledge

Answer 19

Annual Inventory Method

Question 20

In this method, the loss in value is considered to be directly proportional to the age of the property

Answer 20

Straight-line Formula

Question 21

In this method it is assumed that the total depreciation that has taken place is directly proportional to the quantity of the output the property up to that time

Answer 21

Service-Output Method

Question 22

For this method, it is assumed that the amount of capital recovered each year is on a straight-line basis

Answer 22

Straight-line plus average interest formula

Question 23

They consider the write-off on only one asset at a time

Answer 23

unit or item depreciation

Question 24

Consists of the computation of a single annual depreciation charge for a group of similar assets using their average life

Answer 24

Group depreciation method

Question 25

If the class consists of dissimilar assets, the depreciation computed is termed _____

Answer 25

composite depreciation

Question 26

The annual charge set aside in the fund is called ____ rather than depreciation cost

Answer 26

depletion cost

Question 27

The depletion charge depends upon the cost of the property and the number of units in the property

Answer 27

Unit or Factor Method

Question 28

This allows a fixed percentage of gross income received during a year to be the depletion charge

Answer 28

Percentage or Depletion Allowance Method

Question 29

The theoretical depletion charge for a year is usually determined by these two methods

Answer 29

1. Unit or Factor Method
2. Percentage or Depletion Allowance Method