Exam 11: Depreciation, Impairments, and Depletion

The cost of an asset less its residual value is its depreciation base.

The declining-balance method does not deduct the residual value in computing the depreciation base.

The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.

An accelerated depreciation method is appropriate when the asset's economic usefulness is the same each year.

After an impairment loss is recorded, the recoverable amount becomes the basis for the impaired asset and is used to calculate depreciation in future periods.

Recoverable amount is defined as the higher of fair value less costs to sell or value-in-use.

The three factors involved in the depreciation process are the depreciation base, the useful life, and the risk of obsolescence.

Which of following is not a similarity in the accounting treatment for depreciation and cost depletion?

Depreciation, depletion, and amortization all involve the allocation of the cost of a long-lived asset to expense.

Changes in estimates are handled prospectively by dividing the asset's book value less any residual value by the remaining estimated life.

Myers Company acquired machinery on January 1, 2014 which it depreciated under the straight-line method with an estimated life of fifteen years and no residual value. On January 1, 2019, Myers estimated that the remaining life of this machinery was six years with no residual value. How should this change be accounted for by Myers?