Question 1

The historical cost of an asset less its residual (scrap) value is called:

Accepted Answer

The depreciable amount is the cost of an asset less its residual (scrap) value, and it is the amount that can be depreciated over the asset's useful life. Choice A, carrying value, refers to the current book value of an asset, which includes accumulated depreciation. Choice B, accumulated depreciation, is the total amount of depreciation that has been recorded on the asset since it was acquired. Choice D, straight-line value, is not a commonly used accounting term.

Question 2

Ryan Co purchased a computer for $15 000. Originally it had an estimated useful life of 4 years and a residual value of $3000, but on the first day of the 4th year of life the estimated useful life was extended by a further two years and the residual value was reduced to zero. Ryan Co uses the straight-line method to depreciate its computer equipment. At the end of year 4, how much depreciation should be recorded for the computer?

Accepted Answer

Initially, the annual depreciation was ($15,000 - $3,000) / 4 = $3,000. After 3 years, $9,000 is depreciated, leaving a book value of $6,000. With 3 years remaining (2 extended years + 1 year), the new annual depreciation is $6,000 / 3 = $2,000.

Question 3

The statement that describes the assumption underlying the straight-line method of depreciation is which of the following?

Accepted Answer

The straight-line method of depreciation assumes that the asset will contribute equally to revenue generation over its useful life, leading to an equal expense allocation each year.

Question 4

The Egypt Corporation purchased a machine for $40 000 on 1 January 2011 which is expected to have a 5 year life, no residual value, and to produce a total of 20 000 ridgets before it is scrapped. Assuming the Egypt Corporation uses the units-of- production method and actual production for the calendar year 2012 is 8000 ridgets, calculate the carrying value of the machine as at 31 December 2012. The depreciation charge for 2011 was $10 000.

Accepted Answer

The answer of The Egypt Corporation purchased a machine for...

Question 5

Which statement concerning the sum-of-the-years'-digits method of depreciation is true?

Accepted Answer

The sum-of-the-years'-digits method of depreciation results in a decreasing depreciation charge per annum over the life of the asset. This is because the method takes into account that an asset is more productive and valuable in its early years of use, and becomes less productive and valuable as it ages.

Question 6

Accepted Answer

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Question 7

Which statement best describes the nature of accounting depreciation?

Accepted Answer

Accounting depreciation is the process of allocating the cost of a long-term asset (such as a building or equipment) over its estimated useful life. This allocation is taken as an expense in each accounting period in order to recognize the use of the asset and its gradual decline in value over time. Option A is incorrect because accounting depreciation is not tied to changes in market value, but rather to the asset's useful life. Option C is incorrect because while depreciation may impact tax deductions, it is not the definition of depreciation itself. Option D is incorrect because accounting depreciation is based on the cost of the asset, not its current replacement value.

Question 8

Depreciation charged at the end of the accounting period is what type of entry?

Accepted Answer

Depreciation charged at the end of the accounting period is an adjusting entry, which is made to update the accounts for transactions or events that have occurred but have not been recorded at the end of the period. It is necessary to report accurate financial statements and ensure that expenses are matched with the revenue generated during the accounting period.

Question 9

On 31 December 2014 a new motor vehicle with a life of five years and no estimated residual value was purchased by a business at a cost of $23 000, net of GST. The diminishing-balance depreciation method is employed. At a rate of 25% p.a. what is the carrying value of the motor vehicle at 31 December 2016 after charging depreciation for that year?

Accepted Answer

The annual depreciation rate using the diminishing-balance method is calculated as follows:

Year 1: 25% x $23,000 = $5,750
Year 2: 25% x ($23,000 - $5,750) = $4,312.50

To calculate the carrying value at 31 December 2016, we need to deduct the accumulated depreciation from the original cost:

Carrying value = $23,000 - ($5,750 + $4,312.50) = $12,937.50

Therefore, the correct answer is D.

Question 10

HRH 's balance sheet of 30 June 2014 shows a motor vehicle at a cost price of $56 000 less accumulated depreciation of $28 000. Depreciation is calculated on a straight-line basis. If the vehicle had a useful life of 6 years at the time of purchase and a residual value of $8000 what is its carrying amount on 1 July 2016?

Accepted Answer

The carrying amount on 1 July 2016 would be $12,000. This is calculated by first determining the annual depreciation, which is ($56,000 - $8,000) / 6 = $8,000 per year. By 30 June 2014, after 2 years, the accumulated depreciation is $28,000, indicating that the depreciation expense was higher than the straight-line basis calculation, possibly due to an initial error or adjustment. However, following the given information for a straight-line basis, two more years of depreciation (for the years ending 30 June 2015 and 30 June 2016) would be $16,000 ($8,000 per year x 2). Subtracting this from the initial cost ($56,000 - $16,000) gives a carrying amount of $40,000 by 30 June 2016. However, considering the accumulated depreciation already accounted for ($28,000 for 2 years), and if we were to correct the approach to align with the straight-line basis provided, the depreciation should indeed total $24,000 ($8,000 x 3 years) by 30 June 2016, not $16,000 over two years as previously calculated. This discrepancy suggests a misunderstanding in the calculation. Given the options and the scenario described, none directly align with the calculated values based on the provided depreciation method and life span, indicating a need to reevaluate the answer based on the given choices and the correct understanding of depreciation calculation. The correct calculation, considering a straight-line depreciation over 6 years with a residual value, should indeed result in a different carrying amount by 1 July 2016, which is not accurately represented in the initial explanation. The correct carrying amount, taking into account the straight-line depreciation from the purchase until 1 July 2016 (4 years of depreciation), should be calculated as follows: Original cost ($56,000) - Accumulated depreciation over 4 years [4 years * ($48,000 depreciation base / 6 years)] = $56,000 - $32,000 = $24,000. This corrects the initial oversight and aligns with the principle of straight-line depreciation, but it does not match the provided answer choices directly, indicating a need for clarification in the question's premise or the answer choices.

Question 11

Which of these is not one of the common methods used to calculate depreciation?

Accepted Answer

Sum-of-the-provisions is not a commonly used method for calculating depreciation. The commonly used methods are straight-line, reducing-balance, and units-of-production.

Question 12

On 1 January 2014 Image Plus Ltd acquired electronic equipment for $18 000, net of GST. It is estimated it will have no residual value. If depreciation is provided at 10% p.a. on the diminishing-balance basis, the depreciation charge for the year ended 31 December 2016 is:

Accepted Answer

The diminishing-balance method calculates depreciation on the book value at the beginning of each year. For 2016, the book value is $14,580 (after two years of depreciation: $18,000 - $1,800 - $1,620). The depreciation for 2016 is 10% of $14,580, which is $1,458.

Question 13

If the straight-line method of depreciation rather than the reducing-balance method is selected, in the later years of the asset's life the depreciation charge will be:

Accepted Answer

The answer of If the straight-line method of depreciation rather...

Question 14

How many of these are ways in which a residual value can be recovered from an asset on its disposal?
$\bullet$Trade in
$\bullet$Sell second-hand
$\bullet$Gift the asset to charity
$\bullet$Sell for scrap

Accepted Answer

Residual value can be recovered by trading in, selling second-hand, or selling for scrap. Gifting to charity does not recover residual value.

Question 15

Which statement relating to depreciation is true?

Accepted Answer

Accumulated depreciation is a contra-asset account that represents the cumulative amount of an asset's cost that has been charged to depreciation expense since the asset was acquired. As for choice B, charging depreciation does not affect the cash account as it is a non-cash expense. Choice C is incorrect as accumulated depreciation is a contra-asset account, not a contra-expense account. Choice D is also incorrect as depreciation is not actual cash that can be used to replace assets, but rather an estimation of the asset's decrease in value over time.

Question 16

How many of these factors will have an effect on the amount of depreciation charged on an asset in a particular accounting period?
$\bullet$Cost or revalued amount of asset
$\bullet$The size of the asset
$\bullet$Method of depreciation used
$\bullet$ Estimated residual value of asset

Accepted Answer

The size of the asset, method of depreciation used, and estimated residual value of the asset will all have an effect on the amount of depreciation charged on an asset in a particular accounting period. The cost or revalued amount of the asset may also impact the amount of depreciation, but it is not always a determining factor. Therefore, the correct choice is C, which includes all three factors that will have an effect on the amount of depreciation.

Question 17

According to IAS 16/AASB 116, how many of the following are factors contributing to the decline in an asset's future economic benefits?
$\bullet$Commercial obsolescence
$\bullet$Technical obsolescence
$\bullet$Wear and tear
$\bullet$Inflation

Accepted Answer

According to IAS 16/AASB 116, factors contributing to the decline in an asset's future economic benefits include commercial obsolescence, technical obsolescence and wear and tear. Inflation is not considered a factor contributing to the decline of an asset's future economic benefits. Therefore, the correct choice is C), which includes the first three factors listed.

Question 18

The Delivery Equipment account in the ledger of A Co has a balance of $17 600 which is the cost of two 2^nd hand trucks purchased on 1 January 2015. The Accumulated Depreciation Delivery Equipment account has a balance on 31 December 2016 of $8000, before adjusting entries. No additional delivery trucks have been acquired or sold. The residual value of each truck is estimated to be $800 and the straight-line depreciation method is used. What is the necessary adjusting entry to record annual depreciation on 31 December 2017? Debit Credit

Accepted Answer

The annual depreciation for one hand truck is ($17,600 - $800) / 2 / 3 = $2,933.33. Since the balance of Accumulated Depreciation Delivery Equipment account is $8,000 before adjusting entries, the adjusting entry would be to debit Depreciation Expense for $2,933.33 and credit Accumulated Depreciation for $2,933.33 per hand truck, which totals to $5,866.67 ($2,933.33 x 2). Therefore, the correct entry is D, Depreciation Exp. $4000 and Accumulated Depreciation Delivery Equipment $4000.

Question 19

Molly Miller acquired a milling machine for $10 000 on 31 December 2014. Calculate depreciation for the year ended 31 December 2016 using the diminishing-balance method at 15% p.a. Assume a nil residual value.

Accepted Answer

The diminishing balance method calculates depreciation by applying a constant rate to the asset's diminishing book value each year. For the first year (2015), the depreciation is 15% of $10,000, which is $1,500. This reduces the book value to $8,500. For the second year (2016), the depreciation is 15% of $8,500, which is $1,275.

Question 20

Which statement best describes the nature of depreciation?

Accepted Answer

Depreciation is the allocation of the cost of an asset over its useful life. This is done in order to match the cost of the asset with the revenue it generates over its useful life.

All other options are not accurate descriptions of the nature of depreciation. Option A describes mark-to-market accounting, not depreciation. Option B describes amortization, not depreciation. Option D describes a reserve for replacement, which is a separate accounting concept, not depreciation.

Quiz 20: Non-Current Assets: Acquisition and Depreciation

The historical cost of an asset less its residual (scrap) value is called:

The statement that describes the assumption underlying the straight-line method of depreciation is which of the following?

Which statement concerning the sum-of-the-years'-digits method of depreciation is true?

Which statement best describes the nature of accounting depreciation?

Depreciation charged at the end of the accounting period is what type of entry?

Which of these is not one of the common methods used to calculate depreciation?

On 1 January 2014 Image Plus Ltd acquired electronic equipment for $18 000, net of GST. It is estimated it will have no residual value. If depreciation is provided at 10% p.a. on the diminishing-balance basis, the depreciation charge for the year ended 31 December 2016 is:

If the straight-line method of depreciation rather than the reducing-balance method is selected, in the later years of the asset's life the depreciation charge will be:

How many of these are ways in which a residual value can be recovered from an asset on its disposal? $\bullet$ Trade in $\bullet$ Sell second-hand $\bullet$ Gift the asset to charity $\bullet$ Sell for scrap

Which statement relating to depreciation is true?

How many of these factors will have an effect on the amount of depreciation charged on an asset in a particular accounting period? $\bullet$ Cost or revalued amount of asset $\bullet$ The size of the asset $\bullet$ Method of depreciation used $\bullet$ Estimated residual value of asset

According to IAS 16/AASB 116, how many of the following are factors contributing to the decline in an asset's future economic benefits? $\bullet$ Commercial obsolescence $\bullet$ Technical obsolescence $\bullet$ Wear and tear $\bullet$ Inflation

Molly Miller acquired a milling machine for $10 000 on 31 December 2014. Calculate depreciation for the year ended 31 December 2016 using the diminishing-balance method at 15% p.a. Assume a nil residual value.

Which statement best describes the nature of depreciation?

Quiz 20: Non-Current Assets: Acquisition and Depreciation

The historical cost of an asset less its residual (scrap) value is called:

The statement that describes the assumption underlying the straight-line method of depreciation is which of the following?

Which statement concerning the sum-of-the-years'-digits method of depreciation is true?

Which statement best describes the nature of accounting depreciation?

Depreciation charged at the end of the accounting period is what type of entry?

Which of these is not one of the common methods used to calculate depreciation?

On 1 January 2014 Image Plus Ltd acquired electronic equipment for $18 000, net of GST. It is estimated it will have no residual value. If depreciation is provided at 10% p.a. on the diminishing-balance basis, the depreciation charge for the year ended 31 December 2016 is:

If the straight-line method of depreciation rather than the reducing-balance method is selected, in the later years of the asset's life the depreciation charge will be:

How many of these are ways in which a residual value can be recovered from an asset on its disposal? ∙\bullet∙ Trade in ∙\bullet∙ Sell second-hand ∙\bullet∙ Gift the asset to charity ∙\bullet∙ Sell for scrap

Which statement relating to depreciation is true?

According to IAS 16/AASB 116, how many of the following are factors contributing to the decline in an asset's future economic benefits? ∙\bullet∙ Commercial obsolescence ∙\bullet∙ Technical obsolescence ∙\bullet∙ Wear and tear ∙\bullet∙ Inflation

Molly Miller acquired a milling machine for $10 000 on 31 December 2014. Calculate depreciation for the year ended 31 December 2016 using the diminishing-balance method at 15% p.a. Assume a nil residual value.

Which statement best describes the nature of depreciation?

How many of these are ways in which a residual value can be recovered from an asset on its disposal? $\bullet$ Trade in $\bullet$ Sell second-hand $\bullet$ Gift the asset to charity $\bullet$ Sell for scrap

According to IAS 16/AASB 116, how many of the following are factors contributing to the decline in an asset's future economic benefits? $\bullet$ Commercial obsolescence $\bullet$ Technical obsolescence $\bullet$ Wear and tear $\bullet$ Inflation