[ECON] Flashcards - Module 2 and 3

Question 1

a series of equal payments occurring at equal interval of time

Answer 1

Annuity

Question 2

Types of Annuities

Answer 2

Ordinary Annuity, Annuity Due, Deferred Annuity, and Perpetuity

Question 3

this type of annuity is one where the payments are made at the end of each period beginning from the first period.

Answer 3

Ordinary Annuity

Question 4

In ordinary annuity, when does P occur?

Answer 4

one period before 1st payment

Question 5

In ordinary annuity, when does F occur?

Answer 5

at the same time with last payment

Question 6

this type of annuity is one where the first payment is made several periods after the beginning of the annuity.

Answer 6

Deferred Annuity

Question 7

It is when payments are made at the beginning of the payment period.

Answer 7

Annuity Due

Question 8

is an annuity where the payment period extends forever, which means that the periodic payments continue indefinitely.

Answer 8

Perpetuity

Question 9

series of cash flows where the amounts change every period.

Answer 9

Gradient Series

Question 10

Types of Gradient Series

Answer 10

Arithmetic and Geometric Gradient Series

Question 11

It is one wherein the cash flow changes (increase or decreases) by the same amount in each cash flow period.

Answer 11

Arithmetic Gradient Series

Question 12

The amount of increase or decrease in payments

Answer 12

Gradient

Question 13

It takes the equivalent of a gradient series as ordinary annuity.

Answer 13

Equivalent Uniform Amount

Question 14

It is when the periodic payment increases or decreases by a constant percentage.

Answer 14

Geometric Gradient Series

Question 15

one of the most important applications of perpetuity

Answer 15

Capitalized Cost

Question 16

It is the sum of its first cost and the present worth of all costs for replacement, operation, and maintenance for a long period or forever.

Answer 16

Capitalized Cost

Question 17

the worth of the property at the end of useful life

Answer 17

Salvage Value

Question 18

defined as the worth of the property if disposed of as a junk.

Answer 18

Scrap Value

Question 19

any mode of paying debt, the principal and the interest included, usually by a series of uniform amount every period.

Answer 19

Amortization

Question 20

a table showing the payments throughout the total interest period.

Answer 20

Amortization Schedule

Question 21

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

Answer 21

Depreciation

Question 22

Types of Depreciation

Answer 22

Physical and Functional Depreciation

Question 23

this is due to the reduction of the physical ability of an equipment or asset to produce results.

Answer 23

Physical Depreciation

Question 24

this is due to the lessening in the demand for the function which the property was designed to render.

Answer 24

Functional Depreciation

Question 25

the cost of acquiring an asset, including transportation expenses and other normal costs of making the asset serviceable for its intended use.

Answer 25

Initial Investment/First Cost (FC)

Question 26

worth of property or an asset as shown on the accounting records of the company. It is the original cost of the property less all allowable depreciation deductions.

Answer 26

Book Value (BV)

Question 27

the amount that will be paid by a willing buyer to a willing seller for a property after depreciation is competed.

Answer 27

Salvage Value (SV)

Question 28

the expected period that a property will be used in trade or business to produce income.

Answer 28

Useful life (L)

Question 29

the length of time during which the property is capable of performing the function

Answer 29

Physical life

Question 30

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

Answer 30

Economic life

Question 31

the number of years over which the basis of property is recovered through the accounting process

Answer 31

Recovery period (n)

Question 32

a percentage for each year of the recovery period that utilized to compute an annual depreciation deduction.

Answer 32

Recovery rate (i)

Question 33

Methods of Depreciation

Answer 33

Straight Line (SLM), Sinking Fund (SFM), Declining Balance (DBM), Double Declining Balance (DBBM), Sum of Year Digits (SOYDM), and Service-Output Method (SOM)

Question 34

The simplest depreciation Method

Answer 34

Straight Line Method

Question 35

Assumes that the loss in value is directly proportional to the age of equipment or asset

Answer 35

Straight Line Method

Question 36

This method assumes that a sinking fund is established in which funds will accumulate for replacement

Answer 36

Sinking Fund Method

Question 37

In this method, total depreciation is assumed to be equal to the accumulated amount in sinking fund at that time.

Answer 37

Sinking Fund Method

Question 38

sometimes called the constant percentage method or the Matheson Formula

Answer 38

Declining Balance Method

Question 39

it is assumed that the annual cost of depreciation is a fixed percentage of the salvage value at the beginning of the year.

Answer 39

Declining Balance Method

Question 40

This method is very similar to the DBM except that the rate of depreciation k is replaced by 2/L

Answer 40

Double Declining Balance Method

Question 41

It is a method of evaluating depreciation where the depreciation changes from year to year.

Answer 41

Sum of Year Digits (SOYD) Method

Question 42

This method assumes that the total depreciation that has taken place is directly proportional to the quantity of output of the property up to that time.

Answer 42

Service-Output Method

Question 43

This method has the advantage of making the unit cost of depreciation constant and giving low depreciation expense during periods of low production

Answer 43

Service-Output Method

Question 44

Methods involved in Service-Output Method

Answer 44

Service Method and Output Method