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The MCQs below are drawn from the Accountancy & Auditing subject category.
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2491
Which depreciation method results in a consistent annual depreciation expense throughout the asset's useful life?
The straight-line method of depreciation allocates the cost of an asset evenly over its estimated useful life. By subtracting the salvage value from the cost and dividing by the number of years, the business records an identical depreciation expense each year, making it the simplest and most common method.
2492
When using the straight-line method of depreciation, on which value is the annual depreciation charge calculated, assuming no residual value exists?
Under the straight-line method, depreciation is calculated by taking the original cost of the asset and subtracting the estimated salvage value, then dividing by the useful life. If the salvage value is zero, the annual depreciation is simply the original cost of the asset divided by its useful life.
2493
What is the alternative terminology for the original cost method of depreciation?
The original cost method, also known as the straight-line method, involves charging a constant amount of depreciation every year over the useful life of the asset. Because the annual depreciation charge remains fixed, it is commonly referred to as the fixed installment method.
2494
Two companies purchase a $10,000 car. Company G uses straight-line depreciation at 15% per annum, and Company H uses the reducing balance method at 20% per annum. What is the difference in depreciation charges for year 2?
Company G (Straight-line): Year 1 = $1,500; Year 2 = $1,500. Company H (Reducing balance): Year 1 = $2,000 (20% of $10,000); Year 2 = $1,600 (20% of $8,000). The difference in Year 2 is $1,600 - $1,500 = $100. Thus, Company H's charge is $100 greater than Company G's charge in the second year.
2495
By what other name is the fixed installment method of depreciation commonly known?
The fixed installment method, frequently referred to as the straight-line method, is also known as the original cost method. This is because the depreciation charge is calculated based on the original cost of the asset, minus its estimated residual value, and is spread evenly over the asset's useful life, resulting in a constant annual depreciation expense.
2496
Which depreciation method utilizes the formula: (Cost - Salvage Value) / Total Capacity * Units Extracted?
The units of production method calculates depreciation based on the actual usage or output of an asset. By dividing the depreciable base by the total estimated capacity and multiplying by the units produced, the expense matches the asset's wear and tear.
2497
What is another common term used for the straight-line method of depreciation?
The straight-line method is frequently referred to as the fixed installment method because it allocates an equal amount of depreciation expense to each accounting period over the useful life of the asset, resulting in a constant annual charge.
2498
Under which depreciation method does the annual depreciation expense remain constant throughout the asset's useful life?
The straight-line method of depreciation allocates the cost of a tangible asset evenly over its useful life. By subtracting the salvage value from the cost and dividing by the number of years, the business arrives at a fixed annual depreciation expense. This method is favored for its simplicity and is appropriate for assets that provide consistent utility over time.
2499
Under the straight-line method of depreciation, how does the annual depreciation expense behave over the useful life of an asset?
The straight-line method of depreciation allocates the cost of a tangible asset evenly over its useful life. By subtracting the salvage value from the cost and dividing by the number of years, the resulting annual depreciation charge remains constant throughout the entire period, ensuring a uniform expense recognition.
2500
A company acquires a vehicle for $6,000 with a 5-year useful life and a $1,000 residual value. Calculate the annual depreciation expense using the straight-line method.
Under the straight-line method, annual depreciation is calculated as (Cost - Residual Value) / Useful Life. Here, ($6,000 - $1,000) / 5 years = $5,000 / 5 = $1,000 per year.
