Depreciation

Question 1

What is depreciation?

Answer 1

Depreciation measures the value an asset loses over time, typically due to wear and tear, usage, age, or obsolescence.

In accounting, depreciation allocates the cost of a tangible asset over its useful life, reflecting the consumption of the asset’s value.

Question 2

What are tangible assets?

Answer 2

Physical items owned by a company, such as machinery, buildings, and equipment.

Question 3

What are intangible assets?

Answer 3

Non-physical items owned by a company, such as patents, trademarks, and goodwill.

Question 4

List factors that make new assets more valuable than older ones.

Answer 4

• Condition
• Technological advancements
• Market demand
• Depreciation

Question 5

What is the Straight-Line Depreciation method?

Answer 5

The most common and simplest method to calculate depreciation, where the cost of the asset is spread evenly over its useful life.

Question 6

What is the formula for calculating annual depreciation using the Straight-Line method?

Answer 6

Annual Depreciation = (Cost of the asset - Salvage value) / Useful life of the asset.

Question 7

What does the term ‘salvage value’ refer to?

Answer 7

The estimated value of an asset at the end of its useful life.

Question 8

Calculate the annual depreciation for an asset costing $100,000 with a salvage value of $20,000 and a useful life of 5 years.

Answer 8

$16,000

Calculation: ($100,000 - $20,000) / 5 years = $16,000.

Question 9

What is accumulated depreciation?

Answer 9

A contra-asset account on a balance sheet that reduces the overall value of a company’s assets.

Question 10

What is carrying value?

Answer 10

The net of the asset account and the accumulated depreciation.

Question 11

What is the purpose of depreciation in accounting?

Answer 11

To match the cost of using an asset with the revenue it generates over time.

Question 12

Fill in the blank: To calculate straight-line depreciation, subtract the estimated salvage value from the cost of the asset to get the _______.

Answer 12

total depreciable amount.

Question 13

What are the steps to calculate Straight-Line Depreciation?

Answer 13

• Determine the cost of the asset
• Subtract the estimated salvage value from the cost
• Determine the useful life of the asset
• Divide the depreciable amount by the useful life to get annual depreciation.