Element 8 8.1.5 Depreciation Methods Quiz

What is straight line depreciation?

• Depreciation method that allocates equal expense each year

• Depreciation method that allocates varying expense each year

• Depreciation method based on units of production

• Depreciation method based on sales revenue

In which depreciation method does the depreciation expense decrease over time?

• Straight line

• Reducing balance

• Units of production

• Sum of the years' digits

How does straight line depreciation affect the value of non-current assets?

• Decreases value rapidly at the beginning

• Decreases value evenly over time

• Does not affect value

• Increases value over time

Which statement is true about reducing balance depreciation?

• It results in higher depreciation expense in the early years

• It results in lower depreciation expense in the early years

• It spreads the depreciation evenly over the asset's life

• It only applies to intangible assets

What is the impact of straight line depreciation on the statement of financial position?

• Fluctuating non-current asset values

• Gradual decrease in non-current asset values

• Constant non-current asset values

• Increase in non-current asset values

How does reducing balance depreciation affect the statement of financial position in the initial years?

• Shows a rapid decrease in non-current asset values

• Shows a gradual decrease in non-current asset values

• Shows an increase in non-current asset values

• Shows no change in non-current asset values

What is a common characteristic of both straight line and reducing balance depreciation?

• Both methods allocate the same total depreciation over the asset's life

• Both methods result in an increasing asset value over time

• Both methods show zero depreciation expense in the first year

• Both methods are only applicable to intangible assets

Which method of depreciation would likely result in higher net income in the later years of an asset's life?

• Straight line

• Reducing balance

How is the annual depreciation expense calculated in the straight line method?

• Based on a fixed percentage of the asset's book value

• Based on the total cost divided by the number of years of useful life

• Based on the units produced

• Based on the sales revenue

What is the formula for reducing balance depreciation?

• (Cost - Residual value) / Useful life

• Cost / Useful life

• Book value x Depreciation rate

• (Cost - Residual value) x Depreciation rate