Q. If a company uses the units of production method for depreciation, what factor is primarily considered?
A.
Time
B.
Usage
C.
Market Value
D.
Cost
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Solution
The units of production method bases depreciation on the actual usage or production output of the asset.
Correct Answer:
B
— Usage
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Q. If an asset has a useful life of 10 years and a salvage value of $5,000, what is the annual depreciation using the straight-line method if the cost is $50,000?
A.
$4,500
B.
$5,000
C.
$4,000
D.
$4,800
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Solution
Annual Depreciation = (Cost - Salvage Value) / Useful Life = ($50,000 - $5,000) / 10 = $4,500.
Correct Answer:
A
— $4,500
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Q. In the declining balance method, what is the depreciation rate applied?
A.
Fixed rate
B.
Variable rate
C.
Percentage of book value
D.
Percentage of cost
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Solution
In the declining balance method, the depreciation rate is applied to the book value of the asset, which decreases over time.
Correct Answer:
C
— Percentage of book value
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Q. Under the straight-line method, 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?
A.
$1,800
B.
$2,000
C.
$1,500
D.
$1,200
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Solution
Annual Depreciation Expense = (Cost - Salvage Value) / Useful Life = ($10,000 - $1,000) / 5 = $1,800.
Correct Answer:
B
— $2,000
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Q. What is the effect of using different depreciation methods on financial statements?
A.
No effect on net income
B.
Different net income and asset values
C.
Only affects cash flow
D.
Only affects tax liabilities
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Solution
Different depreciation methods can lead to different net income and asset values on financial statements.
Correct Answer:
B
— Different net income and asset values
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Q. Which accounting standard requires consistent application of depreciation methods?
A.
IFRS
B.
GAAP
C.
Both IFRS and GAAP
D.
Neither IFRS nor GAAP
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Solution
Both IFRS and GAAP require consistent application of depreciation methods.
Correct Answer:
C
— Both IFRS and GAAP
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Q. Which depreciation method results in higher depreciation expense in the earlier 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 results in higher depreciation expenses in the earlier years due to its accelerated nature.
Correct Answer:
B
— Declining Balance Method
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Q. Which method of depreciation 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 would likely result in the lowest book value of an asset in the early years.
Correct Answer:
B
— Declining Balance Method
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Q. Which of the following is NOT a method of depreciation?
A.
Straight-Line Method
B.
Declining Balance Method
C.
Units of Production Method
D.
Cost Recovery Method
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Solution
The Cost Recovery Method is not a standard method of depreciation; it refers to recovering costs rather than a specific depreciation calculation.
Correct Answer:
D
— Cost Recovery Method
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Q. Which of the following methods would likely result in the lowest book value of an asset at the end of its useful life?
A.
Straight-Line Method
B.
Declining Balance Method
C.
Units of Production Method
D.
All methods result in the same book value
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Solution
The Declining Balance Method typically results in a lower book value at the end of the asset's useful life compared to the Straight-Line Method.
Correct Answer:
B
— Declining Balance Method
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