Q. How does inventory valuation affect the calculation of depreciation?
-
A.
It does not affect depreciation calculations
-
B.
It increases the depreciation expense
-
C.
It decreases the depreciation expense
-
D.
It affects the residual value of the asset
Solution
Inventory valuation does not directly affect the calculation of depreciation, as they are separate accounting processes.
Correct Answer:
A
— It does not affect depreciation calculations
Learn More →
Q. If a company uses the units of production method, what factor primarily determines the depreciation expense?
-
A.
The asset's purchase price
-
B.
The estimated useful life
-
C.
The number of units produced
-
D.
The residual value
Solution
In the units of production method, the depreciation expense is based on the actual number of units produced, making it variable.
Correct Answer:
C
— The number of units produced
Learn More →
Q. In which scenario would a company most likely choose the sum-of-the-years'-digits method?
-
A.
When the asset is expected to generate consistent revenue
-
B.
When the asset's benefits are expected to decline over time
-
C.
When the asset has a long useful life
-
D.
When the asset is used sporadically
Solution
The sum-of-the-years'-digits method is chosen when the asset's benefits are expected to decline over time, allowing for higher depreciation initially.
Correct Answer:
B
— When the asset's benefits are expected to decline over time
Learn More →
Q. What is the impact of not properly accounting for depreciation on financial statements?
-
A.
Overstated assets and net income
-
B.
Understated liabilities
-
C.
Accurate representation of financial position
-
D.
No impact on cash flow
Solution
Not properly accounting for depreciation can lead to overstated assets and net income, misrepresenting the financial position.
Correct Answer:
A
— Overstated assets and net income
Learn More →
Q. What is the impact of using different depreciation methods on financial ratios?
-
A.
No impact on financial ratios
-
B.
It can affect profitability ratios
-
C.
It only affects liquidity ratios
-
D.
It only affects solvency ratios
Solution
Different depreciation methods can affect profitability ratios, as they influence net income and asset values.
Correct Answer:
B
— It can affect profitability ratios
Learn More →
Q. What is the primary advantage of using the sum-of-the-years'-digits method?
-
A.
Simplicity in calculations
-
B.
Matching expenses with revenues more accurately
-
C.
Lower initial depreciation expense
-
D.
Higher residual value
Solution
The sum-of-the-years'-digits method matches expenses with revenues more accurately by allocating more depreciation in the earlier years.
Correct Answer:
B
— Matching expenses with revenues more accurately
Learn More →
Q. What is the primary disadvantage of the declining balance method of depreciation?
-
A.
It is complex to calculate
-
B.
It does not consider the asset's usage
-
C.
It results in lower depreciation in the early years
-
D.
It can lead to a book value lower than the residual value
Solution
The declining balance method can lead to a book value lower than the residual value if not properly managed.
Correct Answer:
D
— It can lead to a book value lower than the residual value
Learn More →
Q. What is the primary purpose of using the straight-line method of depreciation?
-
A.
To allocate the cost of an asset evenly over its useful life
-
B.
To accelerate the depreciation expense in the early years
-
C.
To match the depreciation expense with revenue generated
-
D.
To account for inflation in asset valuation
Solution
The straight-line method allocates the cost of an asset evenly over its useful life, making it simple and widely used.
Correct Answer:
A
— To allocate the cost of an asset evenly over its useful life
Learn More →
Q. When an asset is sold, how is the gain or loss on sale calculated?
-
A.
Sale price minus book value
-
B.
Book value minus sale price
-
C.
Sale price minus original cost
-
D.
Original cost minus book value
Solution
The gain or loss on sale of an asset is calculated as the sale price minus the book value of the asset at the time of sale.
Correct Answer:
A
— Sale price minus book value
Learn More →
Q. Which accounting standard requires companies to disclose their depreciation methods?
-
A.
IFRS
-
B.
GAAP
-
C.
Both IFRS and GAAP
-
D.
Neither IFRS nor GAAP
Solution
Both IFRS and GAAP require companies to disclose their depreciation methods in the financial statements.
Correct Answer:
C
— Both IFRS and GAAP
Learn More →
Q. Which depreciation method is most suitable for assets that have a consistent usage pattern?
-
A.
Straight-line method
-
B.
Declining balance method
-
C.
Units of production method
-
D.
Sum-of-the-years'-digits method
Solution
The straight-line method is most suitable for assets with a consistent usage pattern, as it allocates the cost evenly over time.
Correct Answer:
A
— Straight-line method
Learn More →
Q. Which depreciation method is most suitable for assets that have a predictable pattern of usage?
-
A.
Straight-line method
-
B.
Declining balance method
-
C.
Units of production method
-
D.
Sum-of-the-years'-digits method
Solution
The straight-line method is most suitable for assets with a predictable pattern of usage, as it allocates costs evenly.
Correct Answer:
A
— Straight-line method
Learn More →
Q. Which method of inventory valuation can affect the calculation of depreciation for manufacturing equipment?
-
A.
FIFO
-
B.
LIFO
-
C.
Weighted average
-
D.
Specific identification
Solution
The LIFO method can affect the calculation of depreciation for manufacturing equipment as it impacts the cost of goods sold and inventory valuation.
Correct Answer:
B
— LIFO
Learn More →
Showing 1 to 13 of 13 (1 Pages)
