EEcon_Breakeven Analysis, Depreciation, and Taxation

Question 1

Annual depreciation deduction in year k

Answer 1

d(sub)k

Question 2

Cumulative depreciation through year k

Answer 2

d(sub)k*

Question 3

It is the decrease in value of physical properties with the passage of time

Answer 3

Depreciaition

Question 4

It is the reduction in an asset’s capacity to perform its intended service due to physical impairment

Answer 4

Physical depreciation

Question 5

It occurs as a result of changes in the organization or in technology that decreases or eliminates the need for an asset

Answer 5

Functional depreciation

Question 6

It is a non-cash cost that affects income taxes. It is an accounting concept that establishes an annual deduction against the gross income such that
the effect of use and time on an asset’s value can be reflected in a firm’s financial statements.

Answer 6

Depreciation

Question 7

Where is this stated from?

“There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear including reasonable allowance for obsolescence) of property used in the trade or business.”

Answer 7

Philippine National Internal Revenue
Code section 34 (F)

Question 8

It is the initial cost of acquiring an asset (purchase price) and all other normal costs of making the asset serviceable, such as freight, site
preparation, and installation.

Answer 8

Cost basis (B)

Question 9

It is the estimated value of an asset at the
end of its useful life. It is the amount eventually recovered through sale, trade-in or salvage.

Answer 9

Salvage value

Question 10

Also known as residual value or scrap value

Answer 10

Salvage value

Question 11

Also referred to as basis or unadjusted cost

Answer 11

Cost basis (B)

Question 12

It is the worth of a property as shown on the accounting records of a company. Ordinarily, it means the original cost (cost basis) of the property less all amounts that have been charged as depreciation expense

Answer 12

Book value (BV)

Question 13

What is the formula for book value

Answer 13

BV(sub)k = B – d(sub)k*

Question 14

It is the period of time an asset is kept in productive use in a trade or business.

Answer 14

Useful life (N)

Question 15

In this type of depreciation method, a constant amount is depreciated each year over the useful life of the asset

Answer 15

Straight-line Method (SLM)

Question 16

A depreciation method also known as the constant percentage method or the Matheson formula

Answer 16

Declining Balance Method (DBM)

Question 17

A depreciation method that assumes that the annual cost of depreciation is a fixed percentage of the book value at the beginning of the year

Answer 17

Declining Balance Method (DBM)

Question 18

In this depreciation method, the value of the property decreases at a decreasing rate. This method provides very rapid depreciation during the early years of life of the property, and therefore enables faster recovery of capital.

Answer 18

Sum-of-Year-Digit Method (SYDM)

Question 19

What are the common methods of depreciation?

Answer 19

1. Straight Line Method (SLM)
2. Declining Balance Method (DBM)
3. Double Declining Balance Method (DDBM)
4. Sum-of-Years-Digit Method (SYDM)
5. Sinking Fund Method

Question 20

It is defined as the point where income just covers the associated costs

Total Revenue (TR) = Total Cost (TC)

Answer 20

Breakeven (point)

Question 21

In economics, it is defined as the point where two alternatives are equivalent.

Answer 21

Breakeven point

Question 22

In doing caltech, for finding the number of units to breakeven, what is the formula?

Answer 22

Number of units at breakeven = 0X̂

Question 23

In after tax analysis, depreciation deduction is __

Answer 23

B

Question 24

In after tax analysis, it is A

Answer 24

before-tax cash flow

Question 25

In after tax analysis, it is determined through the formula

C = A - B

Answer 25

Taxable Income

Question 26

In after tax analysis, the cash flow for income taxes is computed using the formula ___

Answer 26

D = -tax rate (C)

Question 27

In after tax analysis, the after-tax cash flow is computed using the formula ___

Answer 27

E = A + D