Concept explainers
a)
First-in First-Out method (FIFO): In First-in-First-Out method, the costs of initial purchased items are sold first. The value of the ending inventory consists of the recent purchased items.
Last-in First-Out method (LIFO): In Last-in-First-Out method, the costs of last purchased items are sold first. The value of the closing stock consists of the initial purchased items.
Straight-line
Declining-balance depreciation:
It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less
To determine: Use of FIFO instead of LIFO
b)
Use of 6-year life instead of 9-year life machinery.
c)
To determine: Use of depreciation method
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FINANCIAL ACCOUNTING: TOOLS WP ACCESS
- Characteristics of Depreciation Methods Below is a common list of depreciation methods and characteristics related to depreciation. Depreciation Methods a. Straight-line depreciation method b. Declining balance depreciation method c. Units-of-production depreciation method when actual units produced increases over the life of the asset Characteristics 1. Results in depreciation expense that decreases over the life of the asset. 2. Results in depreciation expense that increases over the life of the asset. 3. Allocates the same amount of cost to each period of a depreciable assets life. 4. Calculated by multiplying a constant depreciation rate by depreciable cost. 5. Calculated by applying a constant depreciation rate to the assets book value at the beginning of the period. 6. Results in lowest income taxes in early years of the assets life. 7. Consistent with the matching principle. Required: Match one or more of the depreciation methods with each characteristic.arrow_forwardThe straight-line method of depreciation allocates the cost of an asset more rapidly than the sum-of-the-years-digits method.arrow_forwardFor financial accounting purposes, depreciation expense represents the decreasein an asset's fair market value. Select one: True False The total amount of depreciation taken over the life of a depreciable asset should be less if the double-declining balance depreciation method is used than if the straight-line method is used. Select one: True Falsearrow_forward
- For accounting purposes, depreciation refers to the process of ________. A. estimating an asset's current market value B. allocating the cost of a plant asset to expense over its useful life C. recording the decline in the market value of an asset to its book value D. determining the selling price of an assetarrow_forwardWhich depreciation method would result in the same depreciation expense amount regardless of the partial period cor Select one: a. Sum-of-the-years'-digits b. Declining-balance c. Units-of-production d. Straight-linearrow_forwardUnder MACRS and GAAP the acquisition cost is not fully depreciated leaving a residual value. True False 2. Regardless of the purchase date, MACRS sets how much depreciation can be recorded in the first year, while GAAP accounts for the purchase date. True False 3.A company can opt not to take the Bonus Depreciation by completing Form 4562, Depreciation and Amortization. True False 4. For buildings, MACRS, requires________________depreciation method. Sum-of-years'-digits DDB Straight-line straight-line or DDB.arrow_forward
- As generally used in accounting, what is depreciation? a. It is an accounting process which systematically allocates long-lived assets cost to accounting periodsb. It applies only to long-term lived intangible assetsc. It is a process of asset valuationd. It is used to indicate a decline in market value of a long-term lived assetarrow_forwardWhich of the following is considered when depreciating an asset under the cost model? The cost of the asset. The change in the fair value of the asset. The useful life of the asset. Both a and b. Which of the following depreciation methods will most likely result in the highest amount of reported profit in the early years of an asset’s useful life? Straight line 150% declining balance Double declining balance Sum-of-the-years’ digits The most commonly used depreciation method is the straight-line method. replacement method. depreciation method based on revenue. inventory method.arrow_forwardThe depreciation method in which the depreciable cost of an asset is apportioned equally over its estimated life in terms of months or years is called the a.straight-line method. b.declining-balance method. c.sum-of-the-years'-digit method. d.units-of-production method.arrow_forward
- When an item of property, plant and equipment is derecognised, the treatment of any revaluation surplus that relates to an asset includes _______. 1) debiting the revaluation surplus in the journal entry to record the profit or loss on sale of the asset 2) transferring the relevant amount out of the asset revaluation reserve and showing it as revenue in the income statement 3) transferring the revaluation surplus to retained earnings 4) writing off the amount out of the revaluation surplus against the remaining assets in the class of assets to which the asset that was sold belongedarrow_forwardPart A Determine the amount of goodwill at the acquisition date. Part B Determine the following numbers from the consolidated income statement for the year ending December 31, Year 11 Sales Dividend, investment income, and gains Cost of goods sold Other expenses Income tax expense Profit Non-controlling interest Part C Calculate the consolidated retained earnings at December 31, Year 11. The consolidated retained earnings is Part D Determine the following numbers from the consolidated balance sheet at December 31, Year 11 Cash and current receivables Inventories Deferred income tax asset Goodwill Plant and equipment Accumulated depreciation Land Current liabilities Deferred tax liability Long-term liabilities Ordinary shares Non-controlling interestarrow_forwardA gain or loss on the sale of a plant asset is determined by comparing the: A. Asset's original cost with the sales proceeds B. Asset's book value with the sales proceeds C. Asset's original cost with the asset's book value. D. Initial estimate of the asset's salvage value with the sales proceeds. E. None of these.arrow_forward
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