depreciation

Question 1

what does the accruals concept state?

Answer 1

• the cost incurred in a period should be matched with the income produced in the same period
• when a non-current asset is used it is contributing to the income of the business

Question 2

what are the 2 methods of depreciation?

Answer 2

• straight line
• diminishing balance

Question 3

what are the 3 factors that affect depreciation?

Answer 3

• the cost of the asset
• length of useful life
• estimated residual value

Question 4

what is estimated residual value?

Answer 4

the estimated amount that the asset will be sold for when it is no longer of use to the business

Question 5

how to calculate the annual depreciation charge for the straight line method?

Answer 5

(cost-estimated residual value)/useful life

Question 6

how to calculate the annual depreciation charge for the diminishing balance method?

Answer 6

carrying amount x %

Question 7

what are the 2 main methods expressing a depreciation policy?

Answer 7

• calculations on a monthly basis
• acquisition and disposal policy

Question 8

what is the calculations on a monthly basis policy?

Answer 8

depreciation is to be charged on a monthly basis

Question 9

what is the acquisition and disposal policy?

Answer 9

a full year’s depreciation is charged in the year of acquisition and none in the year of disposal

Question 10

what is depreciation?

Answer 10

the measure of the cost of the economic benefits of the tangible non-current assets that have been consumed during the period

Question 11

what is the carrying amount?

Answer 11

the lost of the non-current asset less the accumulated depreciation to date