IA 1 - Depreciation (CHAP 28) Flashcards
Depreciation is best described as a method of
a. Asset valuation
b. Current value allocation
c. Cost allocation
d. Useful life determination
c. Cost allocation
All of the following factors are considered in determining the useful life of an asset, except
a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
d. Residual value
Technical or commercial obsolescence arises from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Change or improvement in production or change in the market demand for the product output of the asset
d. Expiry date of related lease of the asset
c. Change or improvement in production or change in the market demand for the product output of the asset
The production method of depreciation results in
a. Constant charge over the useful life of the asset.
b. Decreasing charge over the useful life of the asset.
c. Increasing charge over the useful life of the asset.
d. Variable charge based on the expected use or output of the asset.
d. Variable charge based on the expected use or output of the asset.
What factor must be present under the production method of depreciation?
a. Total units to be produced can be estimated
b. Production is constant over the life of the asset
c. Repair costs increase with use
d. Obsolescence is expected
a. Total units to be produced can be estimated
Which statement is the assumption on which straight line depreciation is based?
a. The efficiency of the asset decreases in later years.
b. Service value declines as a function of time rather than use.
c. Service value declines as a function of obsolescence.
d. Physical wear and tear are more important than economic obsolescence.
b. Service value declines as a function of time rather than use.
The straight line depreciation is not appropriate for
a. An entity that is neither expanding nor contracting an investment in equipment.
b. Equipment on which maintenance and repairs increase substantially with age.
c. Equipment with useful life not affected by use.
d. Equipment used consistently every period.
b. Equipment on which maintenance and repairs increase substantially with age.
The principal objection to the straight line method of depreciation is that it
a. Provides for the declining productivity of an aging asset
b. Ignores variation in the rate of asset use
c. Tends to result in a constant rate of return
d. Gives smaller periodic writeoff than a decreasing method
b. Ignores variation in the rate of asset use
In which of the following situations is the production method of depreciation most appropriate?
a. An asset’s service potential declines with use.
b. An asset’s service potential declines with time
c. An asset is subject to rapid obsolescence
d. An asset incurs increasing repairs and maintenance
a. An asset’s service potential declines with use.
The composite depreciation method
a. Is applied to a group of homogeneous assets
b. Is an accelerated method of depreciation
c. Does not recognize gain or loss on the retirement of single asset in the group
d. Excludes residual value from the base of the depreciation calculation
c. Does not recognize gain or loss on the retirement of single asset in the group
A method which excludes residual vahie from the base for the depreciation calculation in the earlier years is
a. Straight line
b. Sum of years’ digits
c. Double declining balance.
d. Output method
c. Double declining balance.
The double declining balance method
a. Results in a decreasing depreciation charge.
b. Means residual value is not deducted in computing the depreciation base.
c. Means the carrying amount should not be reduced below residual value.
d. All of these describe double declining balance
d. All of these describe double declining balance
Which depreciation method applies a uniform depreciation rate each period to the carrying amount of an asset?
a. Straight line
b. Declining balance
c. Output method
d. Sum of years’ digits
b. Declining balance
The sum of years’ digits method
a. Results in residual value being ignored.
b. Means the denominator is the number of years remaining at the beginning of the year.
c. Means the carrying amount should not be reduced below residual value.
d. Results in an increasing depreciation charge.
c. Means the carrying amount should not be reduced below residual value.
An asset has a nine-year useful life and is to be depreciated under the sum of years’ digits method. The annual depreciation would be the same as that under the straight line method in the
a. Third year
b. Fifth year
c. Seventh year
d. Ninth year
b. Fifth year
