Topic 7: Quiz Flashcards

1
Q

Depreciation is a means of cost allocation, not a matter of valuation.

A

True

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2
Q

Depreciation is based on the decline in the fair value of the asset.

A

F

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3
Q

Depreciation, depletion, and amortization all involve the allocation of the cost of a
long-lived asset to expense.

A

T

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4
Q

The cost of an asset less its residual value is its depreciation base.

A

T

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5
Q

The three factors involved in the depreciation process are the depreciation base,
the useful life, and the risk of obsolescence.

A

F

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6
Q

Inadequacy is the replacement of one asset with another more efficient and economical asset.

A

F

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7
Q

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.

A

T

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8
Q

The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.

A

T

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9
Q

An accelerated depreciation method is appropriate when the asset’s economic usefulness is the same each year.

A

F

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10
Q

The declining-balance method does not deduct the residual value in computing the depreciation base.

A

T

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11
Q

Changes in estimates are handled prospectively by dividing the asset’s book value less any residual value by the remaining estimated life.

A

T

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12
Q

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.

A

T

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13
Q

Component depreciation must be calculated using the straight-line method.

A

F

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14
Q

The first step in determining an impairment loss is to identify whether impairment
indicators are present.

A

T

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15
Q

The recoverable amount used to impairment test a long-lived tangible asset is defined as the asset’s fair value less costs to sell.

A

F

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16
Q

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.

17
Q

Recoveries of impairment for tangible long-lived assets are reported as components of other comprehensive income.

18
Q

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.

19
Q

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.

20
Q

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.

21
Q

Recoverable amount is defined as the higher of fair value less costs to sell or value-in-use.

22
Q

Assets held for disposal should be reported at the lower of cost or net realizable value.

23
Q

Intangible development costs and restoration costs are part of the depletion base.

24
Q

Although IFRS allows it, most companies do not use revaluation accounting.

25
Unrealized gains from revaluations do not increase net income but are instead reported as components of other comprehensive income.
T
26
The Accumulated Other Comprehensive Income account related to revaluations cannot have a negative balance.
T
27
Revaluation surplus is a temporary account which is closed to Retained Earnings at the end of an accounting period.
F
28
The recoverability test is the first step in impairment testing under both IFRS and U.S. GAAP.
F
29
The asset turnover is computed by dividing net sales by ending total assets.
F
30
The profit margin on sales is a measure for analyzing the use of property, plant, and equipment.
T