Expense

Question 1

Expense definition by IASB

Answer 1

Decreases in economic benefits during the accounting period in the form of outflows, depletions of assets, or incurrences of liabilities

Question 2

4 methods of calculating depreciation

Answer 2

• Straight line method
• Reducing balance method
• Machine hour method
• Product unit method

Question 3

Machine hour method formula

Answer 3

Depreciation/MH
= (Cost - Residual value) ÷ useful life in hours

Annual depreciation
= Depreciation/MH × Actual usage hours

Question 4

Depreciation is calculated until carrying amount reduce to residual value

YES/NO

Answer 4

YES

To ensure asset is fully depreciated

Question 5

Implications of Machine Hour and Production Unit Methods

[ depreciation charged each year would be according to the actual levels of production or machine hours used ]

Answer 5

If production levels or machine hours are higher than expected, then the asset will be fully depreciated earlier than planned

and vice versa