Concept explainers
(a)
Fixed assets:
Fixed assets are long lived economic resources which are owned by the company. Fixed asset accounts are increased by the debits and decreased by the credits. Thus, fixed asset accounts normally show debit balances (
Depreciation is permanent decreases in the monetary value of an asset over the time period due to use, wear and tear or obsolescence. It is the process of allocating (allocation concept) the cost of an asset to expense over its useful life. Depreciation expense is the amount of depreciation that is reported (expenses) on the income statement.
Accumulated depreciation refers to the amount of depreciation that is subtracted from the value of assets in the balance sheet over a period of time.
To determine: The book value of equipment.
(b)
To explain: Whether the balance of accumulated depreciation indicates the equipment’s loss of value.
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Chapter 3 Solutions
FINANCIAL+MANG.-W/ACCESS PRACTICE SET
- Which of the following items is not a consideration when recording periodic depreciation on plant assets? Question 9 options: Salvage value Estimated useful life Cash needed to replace the plant asset Costarrow_forwardThe book value of an asset is defined as ____________________. a. Estimated fair market value b. Cost –Accumulated depreciation c. Cost – salvage – accumulated depreciation d. Cost- Salvage valuearrow_forwardThe write-off of the cost of an intangible asset is called a.deterioration. b.functional depreciation. c.physical depreciation. d.amortization. The write-off of the cost of plant and equipment is called a.amortization. b.depletion. c.depreciation. d.deterioration The 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
- 24. Depreciation Concepts Listed below are concepts and terminology related to depreciation. Required: Match each concept with the related terminology. 1. The period of time over which the company anticipates deriving benefit from the use of the asset 2. The cost of the asset minus its accumulated depreciation 3. The total amount of depreciation expense that has been recorded for an asset since the asset was acquired 4. The amount of cash or trade-in consideration that the company expects to receive when an asset is retired from service 5. A process of cost allocation, not an attempt to measure the fair value of an asset Terminology: depreciation accumulated depreciation book value estimated useful life residual valuearrow_forwardWhich of the following statements is true regarding the amortization of intangible assets? a. Intangible assets with a limited useful life are not amortized.b. The service life of an intangible asset is always equal to its legal life.c. The expected residual value of most intangible assets is zero.d. In recording amortization, Accumulated Amortization is always credited.arrow_forwardWhich of the following best describes depreciation? A.ccounts for the market value of a physical asset B.Part of the cost of a physical asset allocated as an expense to each time period in which the asset is used. C.Shows the increase in value of a physical asset over the asset’s useful life D.Shows the drop in value of an asset when the asset is first used by an entityarrow_forward
- Depreciation records include all of the following information about fixed assets EXCEPT the a. economic benefit of purchasing the asset. b. cost of the asset. c. depreciation method being used. d. location of the asset.arrow_forwardWhich of the following statements if not true? a. Depreciation is the process of allocating the purchase price of an asset minues its residual value to expense, for each period benefited by the asset. b. The cost of an asset includes all acquisition costs necessary to obtain the benefits to be derived from the asset. c. The service life of an asset is the measure of the number of years of service expected from the asset before its disposal. d. The residual value of an asset is the difference between the expected book value of the asset at the end of its service and the cost of disposal.arrow_forwardWhat is Salvage Value? Can you relate this concept to a non-accounting concept? The book explains the Straight - Line depreciation methods (page 396). There are other methods that are important to know. Is the idea of depreciation to match the net book value of the asset to the market value of the asset? Why or why not?arrow_forward
- Depreciation expense under the invenroty system is a. Based on cost minus residual value b. Basically a FIFO approach to depreciable asset accounting c. The result of applying a depreciation rate to the original cost d. A measure of the change in the value of the depreciable assetarrow_forwardThe life cycle costs of an asset include which of the following? I. Purchase cost of the asset II. Shipping and installation cost of the asset. III. Operating and maintenance cost of the asset IV. Salvage value of the asset. Solve, a. I and IV only b. I, III, and IV only c. I and III only d. I, II, III, and IV.arrow_forwardWhich of the following statements are true about the revaluation model perIAS 16 Property, Plant and Equipment?1) Excess depreciation as a result of a revaluation exercise can betransferred between reserves2) Depreciation must be charged based on the historical cost of theasset3) All assets of the same class must be revalued4) Valuations must be independent and carried out regularly Which is correct ?a) 1, 3 and 4b) All of the abovec) 1 and 3d) 2, 3 and 4arrow_forward
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