Understanding Depreciation Methods and Asset Impairment
School
Georgia Southern University**We aren't endorsed by this school
Course
ACCT 425
Subject
Accounting
Date
Dec 12, 2024
Pages
4
Uploaded by DrHornet4721
Depreciation Methods Fixed Assets Impairment Evaluation1. What is the primary purpose of depreciation in accounting?A) To match expenses with revenues over the asset's useful lifeB) To reduce the book value of an asset to zeroC) To record asset sales accuratelyD) To provide tax benefits to the companyAnswer:A) To match expenses with revenues over the asset's useful life2. Under the straight-line method of depreciation, which of the following is true?A) Depreciation expense is the same every year over the asset’s useful lifeB) Depreciation expense is higher in the earlier yearsC) The asset’s salvage value is ignored in the calculationD) Depreciation expense decreases each yearAnswer:A) Depreciation expense is the same every year over the asset’s useful life3. What happens to the book value of a fixed asset under the straight-line method of depreciation?A) It stays constant throughout the asset’s lifeB) It increases each year by the depreciation amountC) It decreases by the same amount each yearD) It decreases at an accelerating rateAnswer:C) It decreases by the same amount each year4. Which of the following is a characteristic of the double-declining balance method of depreciation?A) Depreciation expense is higher in the earlier years of the asset’s useful lifeB) Depreciation expense remains constant over the asset’s lifeC) It uses the same rate as the straight-line methodD) It ignores the asset’s salvage value until the end of its lifeAnswer:A) Depreciation expense is higher in the earlier years of the asset’s useful life5. A company buys equipment for $50,000 with an estimated residual value of $5,000 and a useful life of 10 years. Using the straight-line method, what is the annual depreciation expense?A) $4,500B) $5,000C) $4,000D) $3,500
Answer:C) $4,0006. Which depreciation method is most appropriate for assets that lose value more quickly in the early years of use?A) Straight-line methodB) Sum-of-the-years’ digits methodC) Units of production methodD) Double-declining balance methodAnswer:D) Double-declining balance method7. A company assesses its equipment for impairment. Which of the following would indicate an impairment loss?A) The fair value of the asset is higher than its carrying valueB) The carrying value of the asset exceeds its recoverable amountC) The market value of the asset is the same as its carrying valueD) The asset has been used for the full estimated useful lifeAnswer:B) The carrying value of the asset exceeds its recoverable amount8. When a company determines that an asset is impaired, it must:A) Continue to depreciate the asset as if it were. When a company determines that an asset is impaired, it must:A) Continue to depreciate the asset as if it were not impairedB) Recognize an impairment loss and reduce the carrying amount of the assetC) Reverse all depreciation expenses related to the assetD) Increase the asset's carrying value to its fair valueAnswer:B) Recognize an impairment loss and reduce the carrying amount of the asset9. Under which of the following circumstances should a company assess an asset for impairment?A) The asset’s useful life has been extendedB) There has been a significant decrease in the asset's market valueC) The asset is in the process of being soldD) The asset has reached its residual valueAnswer:B) There has been a significant decrease in the asset's market value10. Which of the following would NOT result in an impairment loss for a fixed asset?A) Significant decrease in the asset’s fair value
B) Obsolescence of the asset due to technological advancesC) A long-term decline in the asset’s performanceD) Routine wear and tearAnswer:D) Routine wear and tear11. If an asset is impaired and its carrying value is written down, which of the following is true?A) The asset can be restored to its original carrying value in the futureB) The impairment loss cannot be reversed in future periodsC) The impairment loss is reversed automatically each yearD) The company should immediately sell the assetAnswer:B) The impairment loss cannot be reversed in future periods12. A company uses the units of production method of depreciation. Which factor most significantly affects the amount of depreciation expense recognized each year?A) The asset's estimated residual valueB) The asset's purchase priceC) The actual usage of the asset or its outputD) The passage of timeAnswer:C) The actual usage of the asset or its output13. In the double-declining balance method, what is the rate of depreciation?A) The straight-line rate multiplied by 2B) The asset's residual value divided by its useful lifeC) The rate of depreciation is determined by the asset’s market valueD) The rate decreases each year based on the asset’s residual valueAnswer:A) The straight-line rate multiplied by 214. Which of the following statements is true regarding the impairment of assets?A) An impairment loss is only recorded when the asset is soldB) Impairment losses only apply to tangible fixed assetsC) A company must test assets for impairment at least annuallyD) Impairment losses are never recognized under IFRSAnswer:C) A company must test assets for impairment at least annually15. Which of the following depreciation methods is most likely to result in higher depreciation expense in the early years of an asset's life?
A) Straight-line methodB) Double-declining balance methodC) Units-of-production methodD) Sum-of-the-years’-digits methodAnswer:B) Double-declining balance method