Exam 11: Depreciation, Impairments, and Depletion

The first step in determining whether an impairment has occurred is to estimate the future net cash flows expected from the use of that asset and its eventual disposition.

On January 1, 2014, the Accumulated Depreciation-Machinery account of a particular company showed a balance of $740,000. At the end of 2014, after the adjusting entries were posted, it showed a balance of $790,000. During 2014, one of the machines which cost $250,000 was sold for $121,000 cash. This resulted in a loss of $8,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2014?

Henry Company purchased a depreciable asset for $240,000. The estimated salvage value is $22,000, 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?

Normally, companies compute depletion on a straight-line basis.

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

McDonald Company acquired machinery on January 1, 2009 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2014, McDonald estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by McDonald?

Morgan Corporation purchased a depreciable asset for $400,000 on January 1, 2012. The estimated salvage value is $40,000, and the estimated useful life is 9 years. The straight-line method is used for depreciation. In 2015, Morgan changed its estimates to a total useful life of 5 years with a salvage value of $60,000. What is 2015 depreciation expense?

A major objective of MACRS for tax depreciation is to

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

Use the following information for questions 115 and 116: On January 1, 2014, Garrett Company purchased a machine costing $250,000. The machine is in the MACRS 5-year recovery class for tax purposes and has an estimated $50,000 salvage value at the end of its economic life. -Assuming the company uses the optional straight-line method, the amount of MACRS deduction for tax purposes for the year 2014 is

The rate of return on total assets is computed by dividing

Even though IFRS does not employ the first-stage recoverability test used under U.S. GAAP ___ comparing the undiscounted cash flows to the carrying amount, the fact that IFRS uses a fair value test to measure impairment loss makes IFRS stricter than U.S. GAAP

Asset revaluations are permitted under IFRS and U.S. GAAP.

Definitions. Provide clear, concise answers for the following. 1. Define depreciation. 2. Define depreciation accounting. 3. Does depreciation accounting provide funds? If not, what does provide funds? What does depreciation accounting do related to funds?

IFRS uses a fair value test to measure impairment loss. However, IFRS does not use the first-stage recoverability test under U.S. GAAP - comparing the undiscounted cash flow to the carrying amount. As a result, the IFRS test is

Which of the following is true of depreciation accounting?

Use the following information for questions 84 and 85: A schedule of machinery owned by Micco Co. is presented below: Micco computes depreciation by the composite method. -The composite rate of depreciation (in percent) for these assets is

Each year a company has been investing an increasingly greater amount in machinery. Since there is a large number of small items with relatively similar useful lives, the company has been applying straight-line depreciation at a uniform rate to the machinery as a group. The ratio of this group's total accumulated depreciation to the total cost of the machinery has been steadily increasing and now stands at .75 to 1.00. The most likely explanation for this increasing ratio is the

Depreciation accounting

In measuring an impairment loss, IFRS uses