Financial Math Depreciation

What is depreciation?

• Depreciation is the allocation of the cost of an asset over its useful life.

• Depreciation is the immediate write-off of an asset's cost.

• Depreciation is the process of increasing the value of an asset.

• Depreciation is the appreciation of an asset over time.

What are the different methods of calculating depreciation?

• Accelerated depreciation method

• Fixed rate method

• Random balance method

• Straight-line method, Units of production method, Double declining balance method, Sum of the years' digits method

Explain the straight-line method of depreciation.

• The straight-line method of depreciation allocates an equal amount of depreciation expense for each year of an asset's useful life.

• The straight-line method of depreciation is only applicable to intangible assets.

• The straight-line method of depreciation results in higher depreciation expense in the early years of an asset's life.

• The straight-line method of depreciation increases the value of the asset each year.

How is the declining balance method of depreciation calculated?

• Multiply the book value of the asset by a percentage based on the asset's age.

• Divide the total cost of the asset by the number of years of its useful life.

• Apply a fixed depreciation rate to the book value of the asset at the beginning of each period.

• Subtract the salvage value of the asset from its original cost.

What is the difference between book value and salvage value?

• Book value is the same as salvage value

• Salvage value is based on historical cost and depreciation, while book value is an estimate of future value

• Book value is based on historical cost and depreciation, while salvage value is an estimate of future value.

• Book value is always higher than salvage value

Discuss the units of production method of depreciation.

• The units of production method of depreciation allocates the cost of an asset based on its age

• The units of production method of depreciation allocates the cost of an asset based on its color

• The units of production method of depreciation allocates the cost of an asset based on its weight

• The units of production method of depreciation allocates the cost of an asset based on its usage or production output.

What is the formula for double declining balance depreciation?

• Book value at the end of the year * 2

• Straight-line depreciation rate * 2

• Book value at the beginning of the year / 2

• (2 * Straight-line depreciation rate) * Book value at the beginning of the year

How does depreciation affect the financial statements of a company?

• Depreciation increases the value of assets on the balance sheet

• Depreciation affects the financial statements by reducing net income on the income statement and decreasing the value of assets on the balance sheet.

• Depreciation increases net income on the income statement

• Depreciation has no impact on financial statements

Explain the concept of accumulated depreciation.

• Accumulated depreciation is the total value of an asset

• Accumulated depreciation is the sum of all liabilities on a balance sheet

• Accumulated depreciation is the amount of profit earned by a company

• Accumulated depreciation is the total depreciation expense recognized on a fixed asset since it was acquired. It represents the cumulative amount of depreciation charged against the asset over its useful life.

Why is depreciation important for businesses?

• Depreciation helps businesses increase their profits immediately

• Depreciation is important for businesses to allocate the cost of an asset over its useful life, matching expenses with revenues generated by the asset.

• Depreciation has no impact on financial statements

• Depreciation is only relevant for personal finances