U2, AOS 3 - Lesson 2 - Depreciation (1)

Question 1

Formula for RB method =

Answer 1

Depreciation rate x carrying value

Question 2

Carrying value formula =

Answer 2

Carrying value = Historical cost – accumulated depreciation

Question 3

Carrying value is…

Answer 3

The economic benefit of a non-current asset that is yet to be consumed/allocated as an expense, plus the residual value.

Question 4

How does a business decide which depreciation method to use?

Answer 4

Is the asset likely to contribute evenly to the generation of revenue over its useful life or is the asset likely to contribute more to the generation of revenue early in its useful life than it does later.

Question 5

T/f - Straight line = contribute to the generation of revenue evenly.

Answer 5

True

Question 6

T/f - Reducing balance = contribute to the generation of revenue unevenly (has many moving parts).

Answer 6

True

Question 7

What does each line represent?

Answer 7

A Historical Cost
B Accumulated Depreciation charged so far
C Depreciation Expense per annum

Question 8

Can a business change depreciation methods during the useful life of an asset?

Answer 8

No - this will impact comparability.