F4 Notecards- Deck #4

Question 1

What are depreciable assets?

Answer 1

Long-lived assets not held for sale

Question 2

What is physical depreciation?

Answer 2

Deterioration/wear

Question 3

What is functional depreciation?

Answer 3

Obsolescense/inadequacy

Question 4

Depreciation base =

Answer 4

Cost - salvage value

Question 5

Composite or Group Depreciation

Answer 5

Composite = dissimilar assets
Group = similar assets

Averages the economic lives of a number of units and depreciates the entire class over a single life

Simplifies record keeping

Question 6

Advantage of Component Depreciation

Answer 6

• More accurate

- Each component gets depreciated over its useful life

Question 7

When one asset in the group is retired/sold,

Answer 7

NO gain/loss recognized; just plug to AD

Question 8

Straight-line Depreciation Method

Answer 8

(Cost - salvage life)/ estimated useful life

Question 9

Sum-of-the-Years’-Digits Depreciation Method

Answer 9

Accelerated depreciation method that gives higher depreciation expense in the early years

(Cost - salvage) X (Remaining life of asset/Sum of the years digits)

simple = N(N+1) / 2

Question 10

Declining Balance Depreciation Method

Answer 10

2 x (1/N) x (Cost- AD)
*Asset can't be depreciated below the salvage value

Question 11

Units of Production Depreciation Method

Answer 11

Step 1: (Cost - salvage)/estimated units or hours = rate per unit or hour
Step 2: Rate per unit X #of units produced = depreciation expense

Question 12

Depletion applies to

Answer 12

Natural Resources

Question 13

Depletion: Purchase cost includes:

Answer 13

Any costs to purchase and then prepare the land for removal/harvest

Question 14

Depletion Base =

Answer 14

Cost - residual value (same as salvage value)

Question 15

Cost Depletion Method

Answer 15

GAAP

Base / recoverable units = rate

Question 16

Unit Depletion Rate Calculation

Answer 16

Step 1: Depletion Base = Cost of land + development costs + Restoration - Residual Value

Step 2: Unit Depletion = depletion base / estimated recoverable units

Step 3: Depletion for the Year = unit depletion X units extracted

Step 4: Depletion to Include in COGS = unit depletion X units sold

Question 17

When is the units-of-production depreciation method most appropriate?

Answer 17

An asset’s service potential declines with use

Question 18

GAAP (fixed assets): If the sum of undiscounted expected future cash flows is less than the carrying amount, what gets recognized?

Answer 18

An impairment loss

Question 19

IFRS (fixed assets): Impairment loss =

Answer 19

Fair value less costs to sell - carrying value

Question 20

GAAP vs IFRS: reversal of impairment losses?

Answer 20

IFRS allows; GAAP does not

Question 21

GAAP: Assets held for disposal vs assets held for use: Major difference =

Answer 21

Held for disposal = Restoration is permitted

Held for use = Restoration NOT permitted