Question

25.Which of the following items does not affect the calculation of depreciation expense?

A.Economic benefits generated by the asset

B.Useful life of the asset

C.Residual value of the asset

D.Capitalized cost of the asset

26.Which of the following statements is correct when the straight-line method is used to compute depreciation?

A.The carrying value of an asset is a constant amount during the asset's useful life

B.Accumulated depreciation is a constant amount during the asset's estimated useful life

C.Depreciation Expense is a constant amount each year

D.The book value of an asset is an increasing amount during the asset's useful life

27.One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method:

A.reduces book value below residual value.

B.does not consider the useful life of the asset in the calculation of depreciation.

C.cannot be used for tax purposes.

D.uses book value instead of depreciable cost in the calculation of depreciation.

28.Why don't all companies use the same depreciation method?

A.US income tax regulations require that a company use the same depreciation method for both financial reporting and income taxes.

B.Different depreciation methods might better reflect the pattern in which assets' economic benefits are used.

C.All companies do use the same depreciation method.

D.Only large companies are allowed to use some of the more complicated depreciation methods.

Answer 1

25. Answer is A

Depreciation is the amount by which the value of the asset decreases due to usage or wear and tear over the life of the asset.

Therefore in calculating depreciation, we must consider the following:

a. Capitalized cost of the asset

b. economis life of the asset.

c. The residual value of the asset.

The economic benefits generated by the asset is not required for arriving at the depreciation of the asset.

26. Answer is C

Under the straight line method of depreciation , the capitalized cost of the asset is divided by the economic life of the asset. therefore the depreciation will be will be constant over the period. For example, for an asset having a capitalized cost of $10,000, residual value of 0 and an economic life of 10 years the depreciation expense will be $1,000 ($10,000 / 10) per year. the depreciation table will be as follows.

Year	Depreciable cost	Beginning carrying value	Depreciation Expense	Ending carrying value
					1	10000	10000	1000	9000
2	10000	9000	1000	8000
3	10000	8000	1000	7000
4	10000	7000	1000	6000
5	10000	6000	1000	5000
6	10000	5000	1000	4000
7	10000	4000	1000	3000
8	10000	3000	1000	2000
9	10000	2000	1000	1000
10	10000	1000	1000	0

27. Answer is D

Under the double declining balance method, depreciation is charged at double the rate of straight line depreciation but is applied on the declining balance (book value) of the asset. Taking the same example as in question 26 whereas the straight line depreciation rate is 10% (100 / 10 years) the double declining rate will be 20% but applied to the carrying value of th easset. the depreciation chart will be as follows.

Year	Depreciable cost	Beginning carrying value	Depreciation		Ending carrying value
			Rate	Expense
1	10000	10000	20%	2000	8000
2	10000	8000	20%	1600	6400
3	10000	6400	20%	1280	5120
4	10000	5120	20%	1024	4096
5	10000	4096	20%	819	3277
6	10000	3277	20%	655	2621
7	10000	2621	20%	524	2097
8	10000	2097	20%	419	1678
9	10000	1678	20%	336	1342
10	10000	1342	20%	1342	0

28. Answer is B