Depreciation Calculation Methods Quiz

What is depreciation in accounting?

• D) A liability

• A) A cash flow

• C) A profit

• B) An estimate of falling value of fixed assets over time

What is the original cost of the packaging machine in the example?

• C) £50,000

• D) £25,000

• A) £10,000

• B) £40,000

What is the residual value of the packaging machine in the example?

• D) £20,000

• A) £5,000

• B) £10,000

• C) £15,000

What is the estimated useful life of the packaging machine in the example?

• D) 6 years

• C) 5 years

• B) 4 years

• A) 3 years

How is the straight line depreciation method calculated?

• B) Original cost minus residual value divided by 5 years

• D) Original cost divided by 3 years

• A) Original cost divided by 5 years

• C) Original cost multiplied by 20%

What is the depreciation cost in the first year using the reducing balance method for the packaging machine?

• B) £8,000

• A) £5,000

• D) £12,000

• C) £10,000

What is the net book value of the packaging machine at the start of year 3 using the reducing balance method?

• A) £20,000

• B) £25,000

• C) £30,000

• D) £32,000

What is the main difference between the straight line and reducing balance methods of depreciation calculation?

• C) The estimated useful life

• D) The net book value

• B) The depreciation rate

• A) The residual value

What is the purpose of calculating depreciation in accounting?

• A) To increase cash flow

• B) To estimate the falling value of fixed assets over time

• C) To reduce profit

• D) To create a liability

What is an important thing to remember about depreciation?

• B) It is a subjective judgment

• A) It is a true cash flow

• D) It is a liability

• C) It is a fixed value