Topic 7: Quiz Flashcards
Depreciation is a means of cost allocation, not a matter of valuation.
True
Depreciation is based on the decline in the fair value of the asset.
F
Depreciation, depletion, and amortization all involve the allocation of the cost of a
long-lived asset to expense.
T
The cost of an asset less its residual value is its depreciation base.
T
The three factors involved in the depreciation process are the depreciation base,
the useful life, and the risk of obsolescence.
F
Inadequacy is the replacement of one asset with another more efficient and economical asset.
F
The major objection to the straight-line method is that it assumes the asset’s economic usefulness and repair expense are the same each year.
T
The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.
T
An accelerated depreciation method is appropriate when the asset’s economic usefulness is the same each year.
F
The declining-balance method does not deduct the residual value in computing the depreciation base.
T
Changes in estimates are handled prospectively by dividing the asset’s book value less any residual value by the remaining estimated life.
T
Under component depreciation, each component of an item of property, plant and equipment whose cost is significant relative to the total cost of the asset must be depreciated separately.
T
Component depreciation must be calculated using the straight-line method.
F
The first step in determining an impairment loss is to identify whether impairment
indicators are present.
T
The recoverable amount used to impairment test a long-lived tangible asset is defined as the asset’s fair value less costs to sell.
F
An asset’s value in use is defined as the present value of the cash flows expected from its future use and eventual sale at the end its useful life.
T
Recoveries of impairment for tangible long-lived assets are reported as components of other comprehensive income.
F
A recovery of impairment for a tangible long-lived asset is limited to the carrying value that would have been reported had the impairment not occurred.
T
After an impairment loss is recorded, the recoverable amount becomes the basis for the impaired asset and is used to calculate depreciation in future periods.
T
An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the expected future cash flows from the use of that asset.
F
Recoverable amount is defined as the higher of fair value less costs to sell or value-in-use.
T
Assets held for disposal should be reported at the lower of cost or net realizable value.
T
Intangible development costs and restoration costs are part of the depletion base.
T
Although IFRS allows it, most companies do not use revaluation accounting.
T
Unrealized gains from revaluations do not increase net income but are instead
reported as components of other comprehensive income.
T
The Accumulated Other Comprehensive Income account related to revaluations cannot have a negative balance.
T
Revaluation surplus is a temporary account which is closed to Retained Earnings at the end of an accounting period.
F
The recoverability test is the first step in impairment testing under both IFRS and U.S. GAAP.
F
The asset turnover is computed by dividing net sales by ending total assets.
F
The profit margin on sales is a measure for analyzing the use of property, plant,
and equipment.
T
