IB Business Management - Depreciation Quiz (HL only)

What is depreciation?

• The increase in the value of an asset over time

• The process of allocating the cost of an asset over its useful life

• The total cost of an asset when purchased

• The accounting procedure to sell an asset

The straight-line method of depreciation assumes that:

• The asset’s value decreases at a constant rate over time

• Depreciation is based on the asset's usage

• The asset’s value decreases more rapidly in the first few years

• The asset is used unevenly throughout its life

In the straight-line method, the depreciation expense in the P&L Account is:

• The same amount each year

• Dependent on the number of units used

• Calculated by multiplying the cost of the asset by its expected usage

• Based on the market value of the asset each year

The formula to calculate annual depreciation under the straight-line method is:

• (Initial Cost – Residual value) ÷ Useful life

• (Initial Cost + Residual Value) ÷ Useful life

• Initial Cost × Residual Value

• Initial Cost ÷ Useful life

Which of the following is an advantage of the straight-line method of depreciation?

• Simplicity and ease of calculation

• Reflects the actual usage of the asset

• Provides tax benefits in the early years

• Matches expenses with revenue more accurately

Which of the following is the most appropriate method of depreciation for an asset that is used at a steady rate throughout its life?

• Straight-line method

• Units of production method

• Reducing balance method

• Double declining balance method

In the units of production method, depreciation expense is calculated based on:

• The asset's usage or number of units produced

• A fixed percentage of the asset’s initial cost

• The total cost of the asset divided by its useful life

• The age of the asset

The formula to calculate depreciation per unit under the units of production method is:

• (Initial Cost – Residual Value) ÷ Total estimated units of production

• (Initial Cost + Residual Value) ÷ Useful life

• (Initial Cost ÷ Useful life) × Units produced

• Total cost of production ÷ Useful life

Which of the following is true about the units of production method?

• Depreciation expense remains the same regardless of usage

• Depreciation is based on the actual usage of the asset each period

• The method assumes that assets wear out evenly over time

If a machine costs $10,000, has a Residual Value of $1,000, and is expected to produce 100,000 units during its useful life, what is the depreciation per unit under the units of production method?

• $0.09

• $0.10

• $9

• $1.00