Lecture 5

Question 1

Straight line depreciation formula

Answer 1

Depreciation = (cost - residual value) / useful life (years)

Question 2

Reducing balance depreciation

Answer 2

Yearly depreciation = book value X depreciation rate

Question 3

revenue allocation (accrual)

Answer 3

Revenue for period = total payment x ((months in period) / total months in service))

Question 4

What are the three criteria for revenue recognition under the realisation convention?

Answer 4

1. Measurable revenue
2. Probable economic benefit
3. Control passed to buyer

Question 5

What principle says revenue must be recorded in the period earned, not when cash has received

Answer 5

Accrual concept

Question 6

How is revenue recognised for a long-term contracts?

Answer 6

Based on proportion of work completed (percentage of completion method)

Question 7

Is buying lab equipment capital or expensed

Answer 7

Expensed

Question 8

Why must incorrect classification (capitalisation versus expense) be avoided?

Answer 8

It misstates profit and financial position