Depreciation Quiz

Which of the following best describes straight-line depreciation?

• A method of allocating the cost of an asset evenly over its useful life.

• A method of allocating the cost of an asset based on the inflation rate

• A method of allocating the cost of an asset in a decreasing pattern

• A method of allocating the cost of an asset based on its market value

What is the formula for calculating straight-line depreciation?

• Initial cost - Salvage value / Useful life

• Initial cost + Salvage value / Useful life

• Initial cost - Salvage value x Useful life

• Initial cost x Salvage value / Useful life

Which of the following best describes the reducing balance method of depreciation?

• The reducing balance method of depreciation is a method of calculating depreciation where the asset's value decreases by a fixed percentage each year.

• The reducing balance method of depreciation is a method of calculating depreciation where the asset's value increases by a fixed percentage each year.

• The reducing balance method of depreciation is a method of calculating depreciation where the asset's value remains constant each year.

• The reducing balance method of depreciation is a method of calculating depreciation where the asset's value is determined by market fluctuations.

Which of the following is an advantage of using the reducing balance method?

• No impact on the timing of depreciation expenses

• Lower depreciation expenses in the earlier years

• Higher maintenance costs in the earlier years

• Higher depreciation expenses in the earlier years

What is the purpose of depreciation expense?

• Selling an asset at a loss

• The initial cost of purchasing an asset

• Allocation of the cost of a tangible asset over its useful life

• Increasing the value of an asset over time

How is the cost of goods sold recorded in the financial statements?

• As an operating expense in the income statement and as inventory in the balance sheet

• As a liability in the income statement and as cost of goods sold in the balance sheet

• As a revenue in the income statement and as a current asset in the balance sheet

• As a long-term investment in the income statement and as a liability in the balance sheet

What does the term 'net income' refer to in the context of a company's financial statement?

• Profit after all expenses and taxes have been deducted

• Revenue generated from sales of goods or services

• Amount of money a company has on hand at a given time

• Total value of a company's assets

What is the formula for calculating book value?

• Original cost of the asset multiplied by the depreciation rate.

• Accumulated depreciation added to the original cost of the asset.

• Original cost of the asset divided by the depreciation rate.

• Accumulated depreciation subtracted from the original cost of the asset.

Which of the following best defines salvage value?

• The amount of money spent on maintaining an asset

• The cost of repairing an asset

• The estimated resale value of an asset at the end of its useful life.

• The original purchase price of an asset

How is the salvage value taken into account in the calculation of depreciation?

• It has no impact on the depreciation calculation.

• It increases the depreciable cost of the asset.

• It decreases the depreciable cost of the asset.

• It is only relevant for tax purposes.