Problem 26-1 1. Which of the following statements best describes the term “depreciation”? a. The systematic allocation of an asset’s cost less residual value over its useful life. b. The removal of an asset from an entity’s statement of financial position. c. The amount by which the recoverable amount of an asset exceeds its carrying amount. d. The amount by which the carrying amount of an asset exceeds its recoverable amount. 2. Carrying amount is the a. Cost of an asset or the amount substituted for cost in the financial statements, less its residual value. b. Amount of cast or cash equivalent paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction. c. Net amount which which the entity expects expects to obtain for for an asset at the end of its useful life life after deducting the expected costs of disposal. d. Amount at which an asset is recognized in the statement of financial position after deducting any accumulated depreciation and accumulated impairment loss. 3. Which of the following statements is incorrect with respect to depreciation? a. The depreciable amount of item or property, plant and equipment shall be allocated on a systematic basis over its useful life. b. The depreciation method used shall not reflect the pattern in which the asset’s economic benefits are consumed by the entity. c. The depreciation charge for each period shall be recognized as an expense unless it is included in the carrying amount of another asset. d. The estimation of the useful life of an item of property, plant and equipment is a matter of judgment based on the experience of the entity with similar assets. 4. All of the following factors are considered in determining the useful life of an asset, except a. Expected usage of the asset b. Expected physical wear and tear c. Technical obsolescence d. Residual value 5. The production method of depreciation results in a. Constant charge over the useful life of the asset. b. Decreasing charge over the useful life of the asset. c. Increasing charge over the useful life of the asset. d. Variable charge based on the expected use or output of the asset. 6. Which is incorrect concerning the residual value of an item of property, plant and equipment? a. The depreciable amount is determined after deducting its residual value of the asset. b. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount. c. The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount. d. The residual value of an asset shall be reviewed at least at each financial yearend and if expectations differ from previous estimate, the change shall be accounted for as a change in accounting policy.
7. The useful life of an item of property, plant and equipment shall be reviewed at least at each financial year-end and if expectations are significantly different from previous estimate, the depreciation charge for the a. Current period only shall be adjusted b. Future period only shall be adjusted c. Prior periods shall be adjusted d. Current and future periods shall be adjusted 8. The depreciation method applied to property, plant and equipment shall be reviewed at least at each financial year-end and if there has been a significant change in the expected pattern of consumption of economic benefits from those assets, the change a. Shall be accounted for as a change in accounting policy b. Shall not be recognized c. Shall be accounted for as a change in accounting estimate d. Shall be accounted for as correction of a prior period error 9. The useful life of an item of property, plant and equipment is I. The period of time over which an asset is expected to be used by the entity. II. The number of production or similar units expected to be obtained from the asset by the entity. a. I only b. II only c. Both I and II d. Neither I nor II 10.Technical or commercial obsolescence arises from a. Expected usage of the asset b. Expected physical wear and tear c. Changes or improvements in production or change in the market demand for the product output of the asset d. Expiry date of related lease of the asset
