Concept explainers
Concept Introduction:
The fixed assets are of two types, one is tangible and other is intangible. The tangible assets are those which can be touched, i.e., having a physical presence. An asset which is used in the business for more than one year and is subject to
Depreciation is the expense which is debited to income statement against the cost of asset, i.e., cost of using the asset in the business or in other words, reduction in value due to wear, tear and obsolescence of the asset over its life.
The double-declining-balancing method is the method of computing the depreciation at the rate
The effects of using double-declining-balance depreciation instead of straight-line method on 'liquidity metrics free cash flows' and 'profitable metrics asset turnover'.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Survey of Accounting (Accounting I)
- 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_forwardUsing the information from EB7, calculate depreciation using the straight-line method.arrow_forward
- An accelerated depreciation method that takes more expense in the first few years of the assets life is ________. A. units-of-production depreciation B. double-declining-balance depreciation C. accumulated depreciation D. straight-line depreciationarrow_forwardDepreciation of a plant asset is the process of ________. A. asset valuation for statement of financial position purposes B. allocation of the assets cost to the periods of use C. fund accumulation for the replacement of the asset D. asset valuation based on current replacement cost dataarrow_forwardWhich of the statements is incorrect concerning the depreciation methods? * a. Under the output method, the cost per unit of production is constant. b. The straight-line method is particularly appropriate where the asset is expected to decline in usefulness as a function of time and the expected use pattern of the asset is fairly constant over time. c. The sum of the years' digits method provides for a decreasing depreciation charge. d. First-year depreciation under the double declining balance method is computed as the depreciable amount multiplied by double the straight line rate. . None of the choices is incorrectarrow_forward
- Why is depreciation expense recognized? Select one: a. To provide a better estimate of the market value of the depreciated assets. b. So that the balance sheet value of plant assets will more accurately reflect the replacement cost of the assets. c. To ensure that cash will be available at the end of the assets' useful life in order to replace it. d. To match the cost of the asset against the revenue using a reasonable allocation. method. Save AnswersNextarrow_forwardCompute the declining-balance depreciation schedule for an asset with thefollowing data:arrow_forwardWhich of the following is true? a.If using the units-of-output method, it is possible to depreciate more than the depreciable cost. b.If using the double-declining-balance method, the total amount of depreciation expense during the life of the asset will be the highest. c.If using the straight-line method, the amount of depreciation expense during the first year is higher than that of the double-declining-balance. d.Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same.arrow_forward
- Which 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_forwardWhich of the following statements is true? - When using the double-declining-balance method, the total amount of depreciation expense during the life of the asset will be the highest. -When using the units-of-output method, it is possible to depreciate more than the depreciable cost. -When using the straight-line method, the amount of depreciation expense during the first year is higher than that of the double-declining-balance. -Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same.arrow_forwardWhich of the following depreciation methods applies a uniform depreciation rate each period to an asset's carrying amount? a.Straight-lineb.Declining-balancec.Sum-of-the-years'-digitsd.Units-of-productionarrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning