Depreciation Quiz

36 multiple-choice questions with answers and explanations · 14 easy, 16 medium, 6 hard

Straight-line, declining balance, units-of-production and sum-of-the-years’-digits depreciation, partial-year charges, changes in estimate, and carrying amount.

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  1. 1Depreciation — PurposeWhat is the primary purpose of recording depreciation on a non-current asset?easy
  2. 2IAS 16 — Depreciation MethodsIAS 16 (para. 62) gives examples of depreciation methods. Which of the following is NOT one of the methods it lists?easy
  3. 3Capital vs Revenue ExpenditureWhich of the following is CAPITAL expenditure?easy
  4. 4Depreciation That Varies with UsageWhich depreciation method produces an expense that varies directly with the asset's activity or output?easy
  5. 5Residual Value in DepreciationThe residual (salvage) value of an asset is:easy
  6. 6Straight-Line Depreciation with Residual ValueEquipment costs $25,000, has a residual value of $5,000 and a useful life of 4 years. Annual straight-line depreciation is:easy
  7. 7US GAAP: Is the Revaluation Model Permitted?Under US GAAP, may a company carry property, plant and equipment at a revalued (fair value) amount?easy
  8. 8Straight-Line Method of Depreciation: The FormulaWhich formula gives the annual depreciation charge under the straight-line method?easy
  9. 9Straight-Line Depreciation Rate as a PercentageAn asset has a useful life of 8 years and is depreciated on the straight-line basis. What is the annual depreciation rate?easy
  10. 10Straight-Line Depreciation: Pattern of the Annual ChargeUnder the straight-line method, the depreciation expense is:easy
  11. 11Declining Balance Method of Depreciation: Pattern of the Annual ChargeUnder the declining (reducing) balance method, the depreciation expense:easy
  12. 12Which Asset Is Not Depreciated?Which of the following non-current assets is normally NOT depreciated?easy
  13. 13Carrying Amount (Net Book Value): The FormulaThe carrying amount (net book value) of a non-current asset is:easy
  14. 14Depreciable Amount: The CalculationA machine costs $25,000, has an estimated residual value of $4,000 and a useful life of 7 years. What is its depreciable amount?easy
  15. 15IAS 16 — Depreciation StartUnder IAS 16, depreciation of a property, plant and equipment asset begins:medium
  16. 16Straight-Line DepreciationEquipment costs $50,000, has a residual value of $5,000, and a useful life of 9 years. Annual depreciation under the straight-line method is:medium
  17. 17Partial-Year DepreciationA machine costing $36,000 (residual value $6,000, useful life 5 years, straight-line) was purchased on April 1. Depreciation expense for the year ended December 31 is:medium
  18. 18IAS 16 — What Goes into the Cost of PPE?Under IAS 16, which of the following is NOT capitalized as part of the cost of a new machine?medium
  19. 19Double-Declining Balance — Year 2 ExpenseEquipment costing $50,000 has a 5-year life (residual value ignored until the end). Under double-declining balance, depreciation expense for YEAR 2 is:medium
  20. 20Depletion of Natural ResourcesA mine costs $2,000,000 with an expected residual value of $200,000 and estimated reserves of 600,000 tons. If 90,000 tons are extracted this year, depletion expense is:medium
  21. 21IAS 16 — Exchange of AssetsWhen an item of PPE is acquired in exchange for another non-monetary asset and the exchange has commercial substance, the new asset is measured at:medium
  22. 22Straight-Line Depreciation: Carrying Amount After Three YearsEquipment costs $42,000, has a residual value of $6,000 and a useful life of 6 years. Using the straight-line method, what is its carrying amount after three years?medium
  23. 23Double-Declining Balance Rate: Converting a Useful Life into a RateAn asset has a useful life of 8 years. What depreciation rate is used under the double-declining balance method?medium
  24. 24Declining Balance Method: What Is the Rate Applied To?Under the declining balance method, the depreciation rate is applied each year to:medium
  25. 25Straight-Line vs Declining Balance: Total Depreciation over the Whole LifeOver the whole life of an asset with the same cost and residual value, the declining balance method compared with the straight-line method charges:medium
  26. 26Sum-of-the-Years'-Digits Depreciation: First-Year ChargeA machine costs $33,000, has a residual value of $3,000 and a useful life of 4 years. Using the sum-of-the-years’-digits method, what is the first-year depreciation?medium
  27. 27Revising Useful Life: Depreciation After a Change in EstimateAn asset costing $50,000 with no residual value is depreciated straight-line over 10 years. After 4 years, its REMAINING useful life is revised to 3 years. What is the new annual depreciation charge?medium
  28. 28Accumulated Depreciation vs Depreciation ExpenseAn asset bought three years ago is depreciated by $4,000 a year. The financial statements for the third year show:medium
  29. 29Does Depreciation Provide Cash to Replace an Asset?Recording depreciation each year:medium
  30. 30Choosing a Depreciation Method: Which Asset Suits Declining Balance?The declining balance method is most appropriate for:medium
  31. 31Reducing Balance DepreciationAn asset costs $100,000 and is depreciated at 40% reducing balance. What is the carrying amount at the end of Year 2?hard
  32. 32IAS 16 — Subsequent ExpenditureSubsequent expenditure on a property, plant and equipment item should be CAPITALISED (added to the asset's carrying amount) only if:hard
  33. 33Mid-Year Disposal — Gain or LossA machine had a carrying amount of $35,000 on January 1. Annual straight-line depreciation is $6,000. It is sold on July 1 for $30,000. The result on disposal is:hard
  34. 34IAS 16 — Component (Parts) DepreciationAn airline buys an aircraft whose engines have a much shorter life than the airframe. Under IAS 16 the airline must:hard
  35. 35Straight-Line vs Declining Balance: Difference in First-Year ProfitAn asset costs $80,000, has a residual value of $8,000 and a useful life of 6 years. By how much is first-year profit HIGHER under the straight-line method than under a 30% declining balance method?hard
  36. 36Declining Balance Depreciation: The Residual Value FloorAn asset costs $10,000, has a residual value of $2,000 and is depreciated by the double-declining balance method over 4 years (50% a year). What is the depreciation expense in Year 3?hard

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