Intermediate Accounting 2 - Assessment 2do Taller

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?

• Associating cause and effect

• Systematic and rational allocation

• Immediate recognition

• Partial recognition

In order for a cost to be capitalized (capital expenditure), the following must be present:

• The useful life of an asset must be increased.

• The quantity of assets must be increased.

• The quality of assets must be increased.

• Any one of these.

Which of the following most accurately reflects the concept of depreciation as used in accounting?

• The process of charging the decline in value of an economic resource to income in the period in which the benefit occurred.

• The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.

• A method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved.

• An accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets.

Use of the double-declining balance method

• results in a decreasing charge to depreciation expense.

• means salvage value is not deducted in computing the depreciation base

• means the book value should not be reduced below salvage value.

• all of these.

When depreciation is computed for partial periods under a decreasing charge depreciation method, it is necessary to

• charge a full year's depreciation to the year of acquisition.

• determine depreciation expense for the full year and then prorate the expense between the two periods involved.

• use the straight-line method for the year in which the asset is sold or otherwise disposed of.

• use a salvage value equal to the first year's partial depreciation charge.

A change in estimate should

• result in restatement of prior period statements.

• be handled in current and future periods.

• be handled in future periods only.

• be handled retroactively.

The declining-balance method does not deduct the salvage value in computing the depreciation base.

• True

• False

Changes in estimates are handled prospectively by dividing the asset’s book value less any salvage value by the remaining estimated life.

• True

• False

The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.

• True

• False

Which of following is not a similarity in the accounting treatment for depreciation and cost depletion?

• The estimated life is based on economic or productive life.

• Assets subject to either are reported in the same classification on the balance sheet.

• The rates may be changed upon revision of the estimated productive life used in the original rate computations.

• Both depreciation and depletion are based on time.