Question 1

Which of the following is true of depreciation accounting?

Accepted Answer

A)  It is not a matter of valuation. 
B)  It is part of the matching of revenues and expenses. 
C)  It retains funds by reducing income taxes and dividends. 
D)  All of these answer choices are correct. 
A)  It is not a matter of valuation. 
B)  It is part of the matching of revenues and expenses. 
C)  It retains funds by reducing income taxes and dividends. 
D)  All of these answer choices are correct.

Question 2

Economic factors that shorten the service life of an asset include

Accepted Answer

A)  obsolescence. 
B)  supersession. 
C)  inadequacy. 
D)  All of these answer choices are correct. 
A)  obsolescence. 
B)  supersession. 
C)  inadequacy. 
D)  All of these answer choices are correct.

Question 3

A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn?

Accepted Answer

A)  Vertically and sloping down to the right 
B)  Vertically and sloping up to the right 
C)  Horizontally and sloping down to the right 
D)  Horizontally and sloping up to the right 
A)  Vertically and sloping down to the right 
B)  Vertically and sloping up to the right 
C)  Horizontally and sloping down to the right 
D)  Horizontally and sloping up to the right

Question 4

Although IFRS allows it, most companies do not use revaluation accounting.

Accepted Answer

A) True 
 B)False

Question 5

An asset's value in use is defined as the present value of the cash flows expected from its future use and eventual sale at the end its useful life.

Accepted Answer

A) True 
 B)False

Question 6

Recoveries of impairment for tangible long-lived assets are reported as components of other comprehensive income.

Accepted Answer

A) True 
 B)False

Question 7

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will

Accepted Answer

A)  be constant. 
B)  vary with unit sales. 
C)  vary with sales revenue. 
D)  vary with production. 
A)  be constant. 
B)  vary with unit sales. 
C)  vary with sales revenue. 
D)  vary with production.

Question 8

Which of the following is not a difference between the accounting treatment for depreciation and cost depletion?

Accepted Answer

A)  Depletion applies to natural resources while depreciation applies to plant and equipment. 
B)  Depletion refers to the physical exhaustion or consumption of the asset while depreciation refers to the wear, tear, and obsolescence of the asset. 
C)  Many formulas are used in computing depreciation but only one is used to any extent in computing depletion. 
D)  The cost of the asset is the starting point from which computation of the amount of the periodic charge is made to operations for depreciation, but the fair value reassessed each year as the starting point for the periodic charge for depletion. 
A)  Depletion applies to natural resources while depreciation applies to plant and equipment. 
B)  Depletion refers to the physical exhaustion or consumption of the asset while depreciation refers to the wear, tear, and obsolescence of the asset. 
C)  Many formulas are used in computing depreciation but only one is used to any extent in computing depletion. 
D)  The cost of the asset is the starting point from which computation of the amount of the periodic charge is made to operations for depreciation, but the fair value reassessed each year as the starting point for the periodic charge for depletion.

Question 9

Ferguson Company purchased a depreciable asset for €100,000. The estimated residual value is €10,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

Accepted Answer

A)  €9,000 
B)  €10,000 
C)  €90,000 
D)  €100,000 
A)  €9,000 
B)  €10,000 
C)  €90,000 
D)  €100,000

Question 10

Under IFRS, how is the account revaluation surplus reported?

Accepted Answer

A)  As "other revenues and expenses" on the income statement. 
B)  As part of other comprehensive income which can be reported presented in separate statement, combined with income statement, or in changes in stockholders' equity statement. 
C)  It is included with Reserves in the stockholders' equity section of the Statement of Financial Position. 
D)  The account is not reported in the financial statements. 
A)  As "other revenues and expenses" on the income statement. 
B)  As part of other comprehensive income which can be reported presented in separate statement, combined with income statement, or in changes in stockholders' equity statement. 
C)  It is included with Reserves in the stockholders' equity section of the Statement of Financial Position. 
D)  The account is not reported in the financial statements.

Question 11

The first step in determining an impairment loss is to identify whether impairment indicators are present.

Accepted Answer

A) True 
 B)False

Question 12

Intangible development costs and restoration costs are part of the depletion base.

Accepted Answer

A) True 
 B)False

Question 13

A change in estimate should

Accepted Answer

A)  result in restatement of prior period statements. 
B)  be handled in current and future periods. 
C)  be handled in future periods only. 
D)  be handled retroactively. 
A)  result in restatement of prior period statements. 
B)  be handled in current and future periods. 
C)  be handled in future periods only. 
D)  be handled retroactively.

Question 14

The major objection to the straight-line method is that it assumes the asset's economic usefulness and repair expense are the same each year.

Accepted Answer

A) True 
 B)False

Question 15

An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the expected future cash flows from the use of that asset.

Accepted Answer

A) True 
 B)False

Question 16

Depletion expense

Accepted Answer

A)  is usually part of cost of goods sold. 
B)  includes tangible equipment costs in the depletion base. 
C)  excludes intangible development costs from the depletion base. 
D)  excludes restoration costs from the depletion base. 
A)  is usually part of cost of goods sold. 
B)  includes tangible equipment costs in the depletion base. 
C)  excludes intangible development costs from the depletion base. 
D)  excludes restoration costs from the depletion base.

Question 17

Inadequacy is the replacement of one asset with another more efficient and economical asset.

Accepted Answer

A) True 
 B)False

Question 18

The recoverable amount used to impairment test a long-lived tangible asset is defined as the asset's fair value less costs to sell.

Accepted Answer

A) True 
 B)False

Question 19

Under component depreciation, each component of an item of property, plant and equipment whose cost is significant relative to the total cost of the asset must be depreciated separately.

Accepted Answer

A) True 
 B)False

Question 20

The recoverability test is the first step in impairment testing under both IFRS and U.S. GAAP.

Accepted Answer

A) True 
 B)False

Which of the following is true of depreciation accounting?

Economic factors that shorten the service life of an asset include

A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn?

Although IFRS allows it, most companies do not use revaluation accounting.

An asset's value in use is defined as the present value of the cash flows expected from its future use and eventual sale at the end its useful life.

Recoveries of impairment for tangible long-lived assets are reported as components of other comprehensive income.

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will

Which of the following is not a difference between the accounting treatment for depreciation and cost depletion?

Ferguson Company purchased a depreciable asset for €100,000. The estimated residual value is €10,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

Under IFRS, how is the account revaluation surplus reported?

The first step in determining an impairment loss is to identify whether impairment indicators are present.

Intangible development costs and restoration costs are part of the depletion base.

A change in estimate should

The major objection to the straight-line method is that it assumes the asset's economic usefulness and repair expense are the same each year.

An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the expected future cash flows from the use of that asset.

Depletion expense

Inadequacy is the replacement of one asset with another more efficient and economical asset.

The recoverable amount used to impairment test a long-lived tangible asset is defined as the asset's fair value less costs to sell.

Under component depreciation, each component of an item of property, plant and equipment whose cost is significant relative to the total cost of the asset must be depreciated separately.

The recoverability test is the first step in impairment testing under both IFRS and U.S. GAAP.

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Intangible Assets

Filters

Exam 11: Depreciation, Impairments, and Depletion

Which of the following is true of depreciation accounting?

Economic factors that shorten the service life of an asset include

A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn?

Although IFRS allows it, most companies do not use revaluation accounting.

An asset's value in use is defined as the present value of the cash flows expected from its future use and eventual sale at the end its useful life.

Recoveries of impairment for tangible long-lived assets are reported as components of other comprehensive income.

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will

Which of the following is not a difference between the accounting treatment for depreciation and cost depletion?

Ferguson Company purchased a depreciable asset for €100,000. The estimated residual value is €10,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

Under IFRS, how is the account revaluation surplus reported?

The first step in determining an impairment loss is to identify whether impairment indicators are present.

Intangible development costs and restoration costs are part of the depletion base.

A change in estimate should

The major objection to the straight-line method is that it assumes the asset's economic usefulness and repair expense are the same each year.

An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the expected future cash flows from the use of that asset.

Depletion expense

Inadequacy is the replacement of one asset with another more efficient and economical asset.

The recoverable amount used to impairment test a long-lived tangible asset is defined as the asset's fair value less costs to sell.

Under component depreciation, each component of an item of property, plant and equipment whose cost is significant relative to the total cost of the asset must be depreciated separately.

The recoverability test is the first step in impairment testing under both IFRS and U.S. GAAP.

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Intangible Assets

Filters