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TFA - Chapter 40 - Depreciation
Personal Financial Planning (Post University)
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40-11 Multiple choice (PAS 16)
1. Which statement best describes the term depreciation?
a. The systematic allocation of the cost of an asset less residual value over the useful life.
b. The removal of an asset from the statement of financial position.
c. The amount by which the recoverable amount of an asset exceeds carrying amount.
d. The amount by which the carrying amount of an asset exceeds recoverable amount.
2. Carrying amount is
a. Cost of an asset or the amount substituted for cost in the financial statements, less
residual value.
b. Amount of cash paid or the fair value of the other consideration given to acquire an
asset at the tirne of acquisition or construction.
c. Net amount which the entity expects to obtain for an asset at the end of the useful life
after deducting the expected cost of disposal.
d. Amount at which an asset is recognized in the statement of financial position after
deducting any accumulated depreciation and accumulated impairment loss.
3. Which statement is incorrect with respect to depreciation?
a. The depreciation method shall reflect the pattern in which the asset's economc benefits
are consumed by the entity.
b. Depreciation of an asset begins when it is available for use or when it is in the location
and condition necessary for the intended use.
c. Depreciation ceases at the earlier between the date the asset is classified as held for
sale and the date the asset is derecognized.
d. Depreciation is not recognized if the fair value of an asset exceeds carrying amount.
4. Which statement is true with respect to residual value?
a. Residual value is the estimated net amount currently obtainable if the asset is at the end
of the useful life.
b. The residual value of an asset may increase to an amount equal to or greater than
carrying amount in which case the deprecation charge is zero.
c. The residual value of an asset shall be reviewed at least at each financial year-end and
any change is accounted for as a change in accounting estimate.
d. All of these statements are true.
5. The useful life of property, plant and equipment is
I. The period of time over which an asset is expected to beused by the entity.
II. The number of production or similar unite expected to be obtained from the asset by the
entity.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
6. All of the following factors are considered in determining the useful life of an asset, except
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a. Expected usage of the asset
b. Expected physical wear and tear
c. Technical obsolescence
d. Residual value
7. The production method of depreciation results in
a. Constant charge over the useful life of the asset.
b. Decreasing charge over the useful life of the asset.
c. Increasing charge over the useful life of the asset.
d. Variable charge based on the expected use or output the asset.
8. Which statement is true in relation to depreciation?
a. Depreciation is not a matter of valuation.
b. Depreciation is part of the matching of revenue and expense.
c. Depreciation retains funds by reducing income tax and dividend.
d. Allof the statements are true about depreciation.
9. Economic factors that shorten the useful life of an asset include
a. Wear and tear
b. Deterioration or decay through aging or passage of time
c. Damage or destruction due to fire, flood, earthquake and other casualty
d. Obsolescence, supersession and inadequacy
10. Technical or commercial obsolescence arises from
a. Expected usage of the asset
b. Expected physical wear and tear
c. Change or improvement in production or change in the market demand for the product
output of the asset
d. Expiry date of related lease of the asset
ANSWER 40-11
1.
a
6.
2.
d
7.
3.
d
8.
4.
d
9.
5.
c
10.
d
d
d
d
c
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QUESTION 40-12 Multiple choice (AICPA
Adapted)
1. Which statement is the assumption on which straight line depreciation is based?
a. The operating efficiency of the asset decreases in later years.
b. Service value declines as a function of time rather than use.
c. Service value declines as a function of obsolescence rather than time.
d. Physical wear and tear are more important than economic obsolescence.
2. The straight line depreciation is not appropriate for
a. An entity that is neither expanding nor contracting an investment in equipment
because it is replacing equipment as the equipment depreciates.
b. Equipment on which maintenance and repairs increase substantially with age.
c. Equipment with useful life that is not affected by the amount of use.
d. Equipment used consistently every period.
3. The principal objection to the straight line method of depreciation is that it
a. Provides for the declining productivity of an aging asset
b. Ignores variation in the rate of asset use
c. Tends to result in a constant rate of return on a diminishing investment base
d. Gives smaller periodic writeoff than a decreasing charge mtethod
4. In which of the following situations is the production method of depreciation most
appropriate?
a. An asset's service potential declines with use
b. An asset’s service potential declines with the passage of time
c. An asset is subject to rapid obsolescence
d. And asset incurs increasing repairs and maintenance with use
5. Which statement provides the best theoretical support for accelerated depreciation?
a. Assets are more efficient in early years and initially generate more revenue.
b. Expenses should be allocated in the manner that “smooths” earnings.
c. Repairs and maintenance costs probably would increase in later periods so depreciation
should decrease.
d. Accelerated depreciation provides easier replacement because of the time value of
money.
6. An asset has a nine-year useful life and is to be appreciated under the sum of year’s digits
method. The annual depreciation expense would be the same as that under the straight line
method in the
a. Third year
b. Fifth year
c. Seventh year
d. Ninth year
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7. The composite depreciation method
a. Is applied to a group of homogeneous assets
b. Is an accelerated method of depreciation
c. Does not recognize gain or loss on the retirement of single asset in the group
d. Excludes residual value from the base of the depreciation calculation
8. An entity using the composite depreciation method for a fleet of trucks, cars and campers
retired one of the trucks and received cash from a salvage entity. The net carrying amount of
these composite asset accounts would be decreased by the
a. Cash proceeds received and original cost of the truck
b. Cash proceeds received
c. Original cost of the truck less the cash proceeds
d. Original cost of truck
9. A machine with a four-year estimated useful life and an estimated 15% residual value was
acquired at the beginning of the current year. The increase in accumulated depreciation for the
second year using the double declining balance method would be
a. Original cost x 85% x 50%
b. Original cost x 50%
c. Original cost x 85% x 50% x 50%
d. Original cost x 50% x 50%
10. A machine with a 5-year estimated useful life and an estimated residual value was acquired at
the beginning of the current year. At the end of the fourth year, accumulated depreciation using
the sum of years' digits method would be
a. Original cost less residual value multiplied by 1/15
b. Original cost less residual value multiplied by 14/15
c. Original cost multipled by 14 / 15
d. Original cost multiplied by 1 / 15
ANSWER 40-12
1.
b
6.
2.
b
7.
3.
b
8.
4.
a
9.
5.
a
10.
b
c
b
d
b
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40-13 Multiple choice (IAA)
1. Depreciation is best described as a method of
a. Asset valuation
b. Current value allocation
c. Cost allocation
d. Useful life determination
2. Which depreciation method is not based on the passage of time?
a. Production method
b. Sum of years’ digits
c. Declining balance
d. Straight line
3. A method which excludes residual value from the base for the depreciation calculation is
a. Straight line
b. Sum of year's digits
c. Double declining balance
d. Output method
4. The double declining balance method
a. Results in a decreasing depreciation charge.
b. Means residual value is not deducted in computing the depreciation base.
c. Means the carrying amount should not be reduced below residual value.
d. All of these describe double declining balance
5. Which depreciation method applies a uniform depreciation rate each period to the carrying
amount of an asset?
a. Straight line
b. Declining balance
c. Output method
d. Sum of years' digits
6. What factor must be present to use the production method of depreciation?
a. Total units to be produced can be estimated
b. Production is constant over the life of the asset
c. Repair costs increase with use
d. Obsolescence is expected
7. The sun of years' digits method
a. Results in residual value being ignored.
b. Means the denominator is the number of years remaining at the beginning of the year.
c. Means the carrying amount should not be reduced below residual value.
d. Results in an increasing depreciation charge.
8. In order to calculate. the depreciation of asset for the third year using the sum of years’ digits
method, which of the following must be known about the asset?
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a. Acquisition cost
b. Residual value
c. Useful life
d. All must be known
9. Which depreciation method is not appropriate for situations involving a large number of
similar items, each having a small peso cost?
a. Inventory method
b. Retirement method
c. Replacement method
d. Composite method
10. Which statement regarding depreciation is true?
a. An asset must be depreciated from the date of purchase.
b. The annual depreciation charge must be constant
c. The total cost of an asset must eventually be depreciated
d. If the carrying amount of an asset is less than hi residual value, depreciation is not
charged.
ANSWER 40-13
1.
c
6.
2.
a
7.
3.
c
8.
4.
d
9.
5.
b
10.
a
c
d
d
d
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