Depreciation

What is the purpose of depreciation?

• To summarize financial performance of a business
• To adjust the cost of an asset over time
• To record the loss of value of an asset
• To reduce tax liability

Which type of depreciation is used to calculate the value of an asset over its estimated useful life?

• Straight-line depreciation
• Sum-of-the-years digits depreciation
• Unit-of-production depreciation
• Double-declining balance depreciation

What is the formula for straight-line depreciation?

• Depreciation expense = (Cost - Salvage value) / Useful life
• Depreciation expense = (Cost - Salvage value) x Useful life
• Depreciation expense = (Cost - Salvage value) x 2 / Useful life
• Depreciation expense = (Cost - Salvage value) / 2 x Useful life

Which of the following is NOT an example of an intangible asset?

• Goodwill
• Equipment
• Patents
• Trade names

What is the maximum amount of depreciation that can be claimed in a single year?

• The full cost of the asset
• The estimated residual value of the asset
• The estimated useful life of the asset
• The estimated salvage value of the asset

What is the purpose of the salvage value of an asset?

• To determine the total cost of the asset
• To estimate the amount of depreciation to be claimed
• To adjust the cost of an asset over time
• To represent the estimated value of the asset at the end of its useful life

What is the term for the value of an asset at the end of its useful life?

• Salvage value

• Residual value

• Depreciated value

• Book value

What is the effect of depreciation on the value of an asset?

• Increases the value

• Decreases the value

• No effect on the value

• Depends on the type of asset

What does the term 'useful life' of an asset mean?

• The time period during which an asset is expected to be functional

• The time period during which an asset is expected to be non-functional

• The time period during which an asset is expected to be depreciated

• The time period during which an asset is expected to be sold

What is the purpose of the cost of an asset?

• To determine the total value of the asset

• To estimate the amount of depreciation to be claimed

• To adjust the value of an asset over time

• To represent the estimated value of the asset at the end of its useful life