Depreciation

Question 1

the decrease in the value of
physical property with passage of time

Answer 1

Depreciation

Question 2

in commercial sense, is the present worth of all future amounts that are to be received through ownership of a particular property

Answer 2

Value

Question 3

the amount which a willing buyer will pay to a willing seller for the property where each has equal advantage and is under no compulsion to buy or sell

Answer 3

Market Value of a property

Question 4

what the property is worth to the owner as an operating unit.

Answer 4

Utility or Use Value of a property

Question 5

the value which is usually determined by a disinterested third party in order to established a price that is fair to both the seller and the buyer.

Answer 5

Fair Value

Question 6

the original or historical cost of a property less the accumulated depreciation.

Answer 6

Book Value or Depreciated Book Value

Question 7

the price that can be obtained from the sale of property as second hand. This implies that the property is still usable.

Answer 7

Salvage or Resale or Second Hand Value

Question 8

the amount that a property
can be sold off as junk.

Answer 8

Scrap or Junk Value

Question 9

the length of time for which the property is capable of performing the function for which it was designed or manufactured

Answer 9

Physical Life of a property

Question 10

the length of time during which
the property maybe operated at a profit.

Answer 10

Economic Life

Question 11

includes original purchase price plus delivery cost, installation cost and corresponding fees and taxes.

Answer 11

First Cost of equipment

Question 12

the difference between the first cost and salvage value or scrap value of a property.

Answer 12

Depreciation Cost

Question 13

assumes that value of property is
proportional to its age.

Answer 13

Straight Line Method

Question 14

concept is similar to annuity where equal amount of payment (or fund) is set aside so that its accumulated total will be equal to replacing the property once its useful life has been used up.

Answer 14

Sinking Fund Formula

Question 15

asset decreases in value faster in early period than the latter portion of its economic life. Annual depreciation is assumed fixed percentage of the book value at the beginning of a year. This method is not applicable if salvage value of a property is zero. Also known as Constant Percentage Method or Matheson formula.

Answer 15

Declining Balance Method

Question 16

very similar to Declining Balance Method except that the rate of depreciation k is replaced by 2/L.

Answer 16

Double Declining Balance Method

Question 17

the value of a property decreases at a descending rate.

Answer 17

Sum-of-the-Years-Digits (SYD) Method

Question 18

is a measure of the effectiveness of an investment of capital. Is computed and compared with the minimum attractive rate of return. Often this min. attractive rate of return is equal to the prevailing bank interest.

it is assumed that there is a single investment life and that the revenue and cost data are the same for each year.

Answer 18

Rate of Return (ROR) Method

Question 19

In this method, minimum required profit on the invested capital is included as a cost. If the difference in revenue and disbursement is not less than zero, proposed investment is justified or viable.

Answer 19

Annual Worth Method

Question 20

If the present worth of the net cash flow is equal to or greater than zero, project is economically justified.

PW of Net Cash Flow = PW of Revenue/Income – PW of Costs/Expenses

Answer 20

Present Worth Method

Question 21

If the future worth of the net cash flow is equal to or greater than zero, project is economically justified.

Answer 21

Future Worth Method

Question 22

commonly defined as the length of time required to recover the first cost of investment at zero interest rate.

Net Annual Cashflow = Annual Income – Annual Cost

If payback period is less than the useful life of the project, then it is justifiable.

Answer 22

Payback or Payout Period Method

Question 23

the value of the variable for which the costs for the alternatives will be equal.

the quantity of production at which the income is equal to the total cost.

Answer 23

Break even point

Question 24

costs which remain constant, whether or not a given change in operations or policy is adopted; costs that are independent of
the plant output

Answer 24

Fixed Costs

Question 25

costs which vary with output or change in the activity of an enterprise; costs that are dependent on plant output.

Answer 25

Variable Costs