Q. If an asset has a cost of $10,000, a salvage value of $1,000, and a useful life of 5 years, what is the annual depreciation using the Straight-Line Method?
A.
$1,800
B.
$2,000
C.
$1,500
D.
$2,500
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Solution
Annual depreciation is calculated as (Cost - Salvage Value) / Useful Life = ($10,000 - $1,000) / 5 = $2,000.
Correct Answer:
B
— $2,000
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Q. In the context of depreciation, what does 'salvage value' refer to?
A.
The initial cost of the asset
B.
The estimated resale value at the end of its useful life
C.
The total depreciation expense over the asset's life
D.
The market value of the asset
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Solution
Salvage value refers to the estimated resale value of an asset at the end of its useful life.
Correct Answer:
B
— The estimated resale value at the end of its useful life
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Q. Under the Straight-Line Method, how is annual depreciation calculated?
A.
Cost of Asset / Useful Life
B.
Cost of Asset - Salvage Value
C.
Salvage Value / Useful Life
D.
Cost of Asset x Depreciation Rate
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Solution
Annual depreciation under the Straight-Line Method is calculated as Cost of Asset divided by Useful Life.
Correct Answer:
A
— Cost of Asset / Useful Life
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Q. What is the effect of using the Double Declining Balance Method compared to the Straight-Line Method?
A.
Higher depreciation expense in early years
B.
Lower total depreciation over the asset's life
C.
Constant depreciation expense each year
D.
Higher salvage value
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Solution
The Double Declining Balance Method results in higher depreciation expense in the early years compared to the Straight-Line Method.
Correct Answer:
A
— Higher depreciation expense in early years
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Q. What is the primary characteristic of the Declining Balance Method?
A.
Depreciation expense decreases over time
B.
Depreciation expense remains constant
C.
Depreciation expense increases over time
D.
Depreciation is based on units produced
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Solution
The Declining Balance Method results in higher depreciation expenses in the earlier years, which decreases over time.
Correct Answer:
A
— Depreciation expense decreases over time
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Q. Which accounting standard primarily governs the treatment of depreciation?
A.
IFRS 15
B.
IAS 16
C.
IFRS 9
D.
IAS 2
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Solution
IAS 16 governs the accounting treatment of property, plant, and equipment, including depreciation.
Correct Answer:
B
— IAS 16
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Q. Which depreciation method is best suited for assets that have a variable usage pattern?
A.
Straight-Line Method
B.
Declining Balance Method
C.
Units of Production Method
D.
Sum-of-the-Years'-Digits Method
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Solution
The Units of Production Method is best suited for assets with variable usage patterns, as it ties depreciation to actual usage.
Correct Answer:
C
— Units of Production Method
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Q. Which depreciation method is best suited for assets that have a variable usage?
A.
Straight-Line Method
B.
Declining Balance Method
C.
Units of Production Method
D.
Sum-of-the-Years'-Digits Method
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Solution
The Units of Production Method is best suited for assets with variable usage, as it bases depreciation on actual usage.
Correct Answer:
C
— Units of Production Method
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Q. Which of the following is NOT a method of calculating depreciation?
A.
Straight-Line Method
B.
Declining Balance Method
C.
Units of Production Method
D.
Capitalization Method
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Solution
The Capitalization Method is not a recognized method of calculating depreciation.
Correct Answer:
D
— Capitalization Method
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Q. Which of the following methods would likely result in the lowest book value of an asset in the early years?
A.
Straight-Line Method
B.
Declining Balance Method
C.
Units of Production Method
D.
Sum-of-the-Years'-Digits Method
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Solution
The Declining Balance Method typically results in the lowest book value of an asset in the early years due to higher depreciation expenses.
Correct Answer:
B
— Declining Balance Method
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Q. Which of the following methods would likely result in the lowest net income in the early years of an asset's life?
A.
Straight-Line Method
B.
Declining Balance Method
C.
Units of Production Method
D.
Sum-of-the-Years'-Digits Method
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Solution
The Declining Balance Method would likely result in the lowest net income in the early years due to higher depreciation expenses.
Correct Answer:
B
— Declining Balance Method
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