Chapter 7

Question 1

It is defined as the decrease in the values of a property, such as machinery, equipment, building or other structure, due to the passage of time.

Answer 1

Depreciation

Question 2

Antiques, paintings of the masters, rare stamps, rare coins and most cases, land.

Answer 2

Excluded from the definition are properties whose values increase with time

Question 3

Depreciation must always be included in the _______ of any product or the _______

Answer 3

cost of production, rendering of any service

Question 4

The equipment is used for the following two reasons

Answer 4

1. To provide for the replacement of the equipment
2. To provide for the maintenance of capital

Question 5

Physical depreciation cause by the following

Answer 5

1. Deterioration
2. Wear and Tear

Question 6

It is due to the effects of various chemical and mechanical factors on the materials composing the property

Answer 6

Deterioration

Question 7

It is due to abrasion, friction between moving parts of the equipment, impact, and vibration

Answer 7

Wear and Tear

Question 8

It is due to a decrease in the demand for the function of the equipment for which it was designed

Answer 8

Functional depreciation

Question 9

It depends upon the physical or economic life of the equipment and its first cost

Answer 9

Depreciation cost

Question 10

It is the length of time during the which it is capable of performing the function for which it was designed and manufactured

Answer 10

Physical Life of an equipment

Question 11

It is the length of time during which it will operate at a satisfactory profit

Answer 11

Economic Life of an equipment

Question 12

The first cost of any property includes the

Answer 12

original purchase price

Question 13

It is the difference between the first cost and the salvage or scrap value of the equipment

Answer 13

The amount to recovered, equal to depreciation cost

Question 14

Sometimes called second-hand value, is defined to be the amount for which the equipment or machine can be sold as second hand

Answer 14

Salvage value

Question 15

It is the amount of the equipment can be sold for, when disposed off as junk

Answer 15

Scrap or junk value

Question 16

It does not need annuity tables nor computing machines for using it

Answer 16

Straight-Line Formula

Question 17

It does not take into account the interest or profit earned on the accumulated depreciation fund

Answer 17

Straight-Line Formula

Question 18

It requires the use of annuity tables in the absence of the electronic calculator

Answer 18

Sinking Fund Formula

Question 19

It is generally the method used for economy study purposes

Answer 19

Sinking Fund Formula

Question 20

The annual cost of depreciation is a constant percentage of the salvage value at the beginning of the year

Answer 20

Matheson Formula

Question 21

With this formula, a property can never depreciate to zero value

Answer 21

Matheson Formula

Question 22

It provides very rapid depreciation during the early years of life of the property, and therefore enables faster recovery of capital

Answer 22

Sum of the Years-Digits (SYD) Method

Question 23

The value of the property decreases at a decreasing rate

Answer 23

SYD Method

Question 24

Depreciation during any year is charged on the basis of actual service rendered or actual units produced by the property during the year

Answer 24

Service-Output Method

Question 25

It is used in certain cases for computing the depreciation of public utility equipment like taxis, buses, commercial planes

Answer 25

Service-Output Method

Question 26

It is an approximate method, because it adds and subtracts amounts which do not occur at the same point in time

Answer 26

Straight-Line Plus Average Interest Formula

Question 27

The depreciation cost in any year is a constant ratio of the book value at the beginning of the year

Answer 27

Double-Rate Declining-Balance Method

Question 28

This is confined to assets where the major factor in the depreciation is wear and tear arising from one

Answer 28

The Operating Day Method

Question 29

This method may be considered as an extension of the service-output method

Answer 29

Operating Day Method

Question 30

A change is made in the investment account when the property is retired or replaced

Answer 30

The Retirement Method

Question 31

Any expenses for repairs or replacement of worn-out parts made during the life of the equipment are charged directly to current expenses and are never included in the capital account

Answer 31

Retirement Method

Question 32

This method involves the write-off annual depreciation determined by the officers of the company who possess the required experience and technical knowledge

Answer 32

Annual Inventory Method

Question 33

They consider the write-off on only one asset at a time

Answer 33

Unit or Item Depreciation

Question 34

Consists of the computation of a single annual depreciation charge for a group of similar assets using their average life.

Answer 34

Group Depreciation Method

Question 35

If the class consists of dissimilar assets, the depreciation computed is termed

Answer 35

Composite Depreciation

Question 36

Certain natural resources are called _______ or _______ assets due to the gradual extraction of the contents of such properties

Answer 36

wasting, depleting

Question 37

To provide for the recovery of capital invested in such assets, a ______ is provided

Answer 37

Depletion Fund

Question 38

The annual charge set aside in the depletion fund is called

Answer 38

Depletion Cost

Question 39

Similar to service-output method. The depletion charge depends upon the initial cost of the property and number of units of property

Answer 39

The Unit or Factor Method

Question 40

This allows a fixed percentage of the gross income received during a year to be the depletion charge

Answer 40

Percentage or Depletion Allowance Method