Depreciation is a means of adjusting an assets cost to its fair value.
False, Depreciation is a means of cost allocation not valuation.
Which of the following is not true of depreciation accounting?
*****Depreciation lowers the book value of the asset as it ages and its fair value declines.
Depreciation matches expenses against revenues over the periods which benefit from the asset's use.
Depreciation is a process of cost allocation.
Tangible assets
Which of the following is not a physical factor related to depreciation?
Wear and tear.
***Obsolescence.(Economic factor)
Decay.
Casualties.
Changes in the estimates used to calculate depreciation should be handled as a correction of an error and require an adjustment to the beginning balance of Retained Earnings.
False, A change in estimate is not the same as a correction of an error. Such changes are used to change the depreciation charge in the current and prospective periods.
A principal objection to the straight-line method of depreciation is that it
ignores variations in the rate of asset use.
Unless otherwise stipulated, depreciation is normally computed on the basis of:
the nearest full month.
Recording an impairment loss for an asset reduces the balance in its Accumulated Depreciation account.
True, An impairment loss is recorded with a credit to Accumulated Depreciation which reduces the balance in the account.
A company can write up or write down an asset held for disposal in future periods as long as the carrying value after the write-up does not exceed the carrying amount before the impairment.
True, These losses or gains related to the impaired assets should be reported as income from continuing operations.
Reserve recognition accounting
requires estimates of future production costs, the appropriate discount rate, and the expected selling price of oil and gas reserves.
The asset turnover ratio is computed by dividing:
net sales by average total assets.
The rate of return on assets is computed by dividing:
net income by average total assets.