U4, AOS 1 - SL Depreciation Flashcards
What is straight line depreciation?
A method of allocating the cost of a tangible asset evenly over its useful life.
True or False: Straight line depreciation results in higher expenses in the early years of an asset’s life.
False
Fill in the blank: The formula for straight line depreciation is (Cost - Residual Value) / Useful Life.
Cost - Residual Value
What is the purpose of straight line depreciation?
To systematically reduce the book value of an asset over time for accounting purposes.
If an asset costs $10,000, has a salvage value of $1,000, and a useful life of 5 years, what is the annual depreciation expense?
$1,800
True or False: Straight line depreciation is the most commonly used method for calculating depreciation.
True
Which of the following is NOT a component needed to calculate straight line depreciation? A) Cost B) Salvage Value C) Market Value
C) Market Value
What is salvage value?
The estimated residual value of an asset at the end of its useful life.
Short answer: How does straight line depreciation affect a company’s financial statements?
It reduces taxable income by spreading the asset’s cost over its useful life.
True or False: Straight line depreciation can be used for both tangible and intangible assets.
False
Fill in the blank: The useful life of an asset is the period over which it is expected to be ______.
used
What is an example of an asset that might use straight line depreciation?
A company vehicle.
True or False: Companies can choose different depreciation methods for different assets.
True
What is the impact of straight line depreciation on cash flow?
It does not directly affect cash flow as it is a non-cash expense.
Multiple choice: Which method is the opposite of straight line depreciation? A) Declining balance B) Units of production C) Sum of the years’ digits
A) Declining balance
Fill in the blank: Straight line depreciation is often preferred for its ______ and simplicity.
consistency
Short answer: Why might a company choose straight line depreciation over other methods?
For its simplicity and predictability in financial reporting.
True or False: Depreciation expense under the straight line method remains constant each year.
True
What happens to the book value of an asset as straight line depreciation is applied?
It decreases gradually over the asset’s useful life.
Multiple choice: What is the first step in calculating straight line depreciation? A) Estimate salvage value B) Determine useful life C) Calculate initial cost
C) Calculate initial cost
