CHAPTER 10
DEPRECIATION, IMPAIRMENTS, AND DEPLETION
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Depreciation is a means of cost allocation, not a matter of valuation.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
2. Depreciation is based on the decline in the fair market value of the asset.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
3. Depreciation, depletion, and amortization all involve the allocation of the cost of a long-
lived asset to expense.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
4. The cost of an asset less its salvage value is its depreciation base.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
5. The three factors that must be known to calculate depreciation are the depreciation base,
the useful life, and the risk of obsolescence.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
6. Inadequacy is the replacement of one asset with another more efficient and economical
asset.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
7. The major objection to the straight-line method is that it assumes the asset’s economic
usefulness and maintenance and repair expense are the same each year.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
8. The units-of-production approach to depreciation is appropriate when depreciation is a
function of time instead of activity.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
9. An accelerated depreciation method is appropriate when the asset’s economic usefulness
is the same each year.
Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
10. The declining-balance method does not deduct the salvage value in computing the
depreciation expense.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
,10 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
11. Gains or losses on disposals of assets do not distort periodic income when the group or
composite method is used to compute depreciation.
Ans: T, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
12. Companies frequently use the composite approach when the assets are similar in nature
and have approximately the same useful lives.
Ans: F, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
13. Changes in estimates are handled prospectively by dividing the asset’s book value less
any salvage value by the remaining estimated life.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
14. An impairment loss is the amount by which the carrying amount of the asset exceeds the
sum of the expected future net cash flows from the use of that asset.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
15. The first step in determining whether an impairment has occurred is to estimate the future
net cash flows expected from the use of that asset and its eventual disposition.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
16. Impaired assets held for disposal should be reported at the lower of cost or net realizable
value.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
17. The entry to record an impairment loss includes a credit to Accumulated Depreciation.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
18. A recovery of impairment can be recognized for an asset in use but not an asset held for
sale.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
19. Companies typically compute depletion on a straight-line basis.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
20. Intangible development costs and restoration costs are part of the depletion base.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
21. The depletion base includes restoration costs and excludes the salvage value.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
22. The depletion rate is revised on a retrospective basis when there are changes in the
estimates of reserves.
Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
, Depreciation, Impairments, and Depletion 10 - 3
23. A liquidating dividend is a distribution to shareholders of their capital investment.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
24. The asset turnover is computed by dividing net sales by ending total assets.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
25. The profit margin on sales is a measure for analyzing the use of property, plant, and
equipment.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
MULTIPLE CHOICE—Conceptual
26. Which of the following is true of depreciation accounting?
a. It is not a matter of valuation.
b. It is part of the matching of revenues and expenses.
c. It is the process of cost allocation.
d. All of the choices are correct.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
27. Which of the following principles best describes the conceptual rationale for the methods
of matching depreciation expense with revenues?
a. associating cause and effect
b. systematic and rational allocation
c. immediate recognition
d. partial recognition
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
28. Each of the following is a physical factor affecting depreciation except
a. casualties.
b. decay.
c. obsolescence.
d. wear and tear.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
S
29. Which of the following most accurately reflects the concept of depreciation as used in
accounting?
a. It is the process of charging the decline in value of an economic resource to income in
the period in which the benefit occurred.
b. It is the process of allocating the cost of tangible assets to expense in a systematic
and rational manner to those periods expected to benefit from the use of the asset.
c. It is a method of allocating asset cost to an expense account in a manner which
closely matches the physical deterioration of the tangible asset involved.
d. It is an accounting concept that allocates the portion of an asset used up during the
year to the contra asset account for the purpose of properly recording the fair market
value of tangible assets.
Ans: B, LO: 1, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
, 10 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
S
30. The major difference between the service life of an asset and its physical life is that
a. service life refers to the time an asset will be used by a company and physical life
refers to how long the asset will last.
b. physical life is the life of an asset without consideration of salvage value and service
life requires the use of salvage value.
c. physical life is always longer than service life.
d. service life refers to the length of time an asset is of use to its original owner, while
physical life refers to how long the asset will be used by all owners.
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
P
31. The term "depreciable base," or "depreciation base," as it is used in accounting, refers to
a. the total amount to be charged (debited) to expense over an asset's useful life.
b. the cost of the asset less the related depreciation recorded to date.
c. the estimated market value of the asset at the end of its useful life.
d. the acquisition cost of the asset.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
32. Economic factors that shorten the service life of an asset include
a. obsolescence.
b. expiration of physical life.
c. casualty.
d. All of the choices are correct.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
33. Which of the following is not one of the basic questions that must be answered before the
amount of depreciation charge can be computed?
a. What is the depreciation base to use for the asset?
b. What is the asset's useful life?
c. What method of cost apportionment is best for this asset?
d. What product or service is the asset related to?
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
S
34. Which of the following is a realistic assumption of the straight-line method of depreciation?
a. The asset's economic usefulness is the same each year.
b. The repair and maintenance expense is essentially the same each period.
c. The rate of return analysis is enhanced using the straight-line method.
d. Depreciation is a function of time rather than a function of usage.
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
35. The activity method of depreciation
a. is a variable charge approach.
b. assumes that depreciation is a function of the passage of time.
c. conceptually associates cost in terms of input measures.
d. All of the choices are correct.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
DEPRECIATION, IMPAIRMENTS, AND DEPLETION
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Depreciation is a means of cost allocation, not a matter of valuation.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
2. Depreciation is based on the decline in the fair market value of the asset.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
3. Depreciation, depletion, and amortization all involve the allocation of the cost of a long-
lived asset to expense.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
4. The cost of an asset less its salvage value is its depreciation base.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
5. The three factors that must be known to calculate depreciation are the depreciation base,
the useful life, and the risk of obsolescence.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
6. Inadequacy is the replacement of one asset with another more efficient and economical
asset.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
7. The major objection to the straight-line method is that it assumes the asset’s economic
usefulness and maintenance and repair expense are the same each year.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
8. The units-of-production approach to depreciation is appropriate when depreciation is a
function of time instead of activity.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
9. An accelerated depreciation method is appropriate when the asset’s economic usefulness
is the same each year.
Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
10. The declining-balance method does not deduct the salvage value in computing the
depreciation expense.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
,10 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
11. Gains or losses on disposals of assets do not distort periodic income when the group or
composite method is used to compute depreciation.
Ans: T, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
12. Companies frequently use the composite approach when the assets are similar in nature
and have approximately the same useful lives.
Ans: F, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
13. Changes in estimates are handled prospectively by dividing the asset’s book value less
any salvage value by the remaining estimated life.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
14. An impairment loss is the amount by which the carrying amount of the asset exceeds the
sum of the expected future net cash flows from the use of that asset.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
15. The first step in determining whether an impairment has occurred is to estimate the future
net cash flows expected from the use of that asset and its eventual disposition.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
16. Impaired assets held for disposal should be reported at the lower of cost or net realizable
value.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
17. The entry to record an impairment loss includes a credit to Accumulated Depreciation.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
18. A recovery of impairment can be recognized for an asset in use but not an asset held for
sale.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
19. Companies typically compute depletion on a straight-line basis.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
20. Intangible development costs and restoration costs are part of the depletion base.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
21. The depletion base includes restoration costs and excludes the salvage value.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
22. The depletion rate is revised on a retrospective basis when there are changes in the
estimates of reserves.
Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
, Depreciation, Impairments, and Depletion 10 - 3
23. A liquidating dividend is a distribution to shareholders of their capital investment.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
24. The asset turnover is computed by dividing net sales by ending total assets.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
25. The profit margin on sales is a measure for analyzing the use of property, plant, and
equipment.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
MULTIPLE CHOICE—Conceptual
26. Which of the following is true of depreciation accounting?
a. It is not a matter of valuation.
b. It is part of the matching of revenues and expenses.
c. It is the process of cost allocation.
d. All of the choices are correct.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
27. Which of the following principles best describes the conceptual rationale for the methods
of matching depreciation expense with revenues?
a. associating cause and effect
b. systematic and rational allocation
c. immediate recognition
d. partial recognition
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
28. Each of the following is a physical factor affecting depreciation except
a. casualties.
b. decay.
c. obsolescence.
d. wear and tear.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
S
29. Which of the following most accurately reflects the concept of depreciation as used in
accounting?
a. It is the process of charging the decline in value of an economic resource to income in
the period in which the benefit occurred.
b. It is the process of allocating the cost of tangible assets to expense in a systematic
and rational manner to those periods expected to benefit from the use of the asset.
c. It is a method of allocating asset cost to an expense account in a manner which
closely matches the physical deterioration of the tangible asset involved.
d. It is an accounting concept that allocates the portion of an asset used up during the
year to the contra asset account for the purpose of properly recording the fair market
value of tangible assets.
Ans: B, LO: 1, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Interpretation and Analysis, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
, 10 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
S
30. The major difference between the service life of an asset and its physical life is that
a. service life refers to the time an asset will be used by a company and physical life
refers to how long the asset will last.
b. physical life is the life of an asset without consideration of salvage value and service
life requires the use of salvage value.
c. physical life is always longer than service life.
d. service life refers to the length of time an asset is of use to its original owner, while
physical life refers to how long the asset will be used by all owners.
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
P
31. The term "depreciable base," or "depreciation base," as it is used in accounting, refers to
a. the total amount to be charged (debited) to expense over an asset's useful life.
b. the cost of the asset less the related depreciation recorded to date.
c. the estimated market value of the asset at the end of its useful life.
d. the acquisition cost of the asset.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
32. Economic factors that shorten the service life of an asset include
a. obsolescence.
b. expiration of physical life.
c. casualty.
d. All of the choices are correct.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting and
Control: Financial Statement Preparation, IFRS: None
33. Which of the following is not one of the basic questions that must be answered before the
amount of depreciation charge can be computed?
a. What is the depreciation base to use for the asset?
b. What is the asset's useful life?
c. What method of cost apportionment is best for this asset?
d. What product or service is the asset related to?
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
S
34. Which of the following is a realistic assumption of the straight-line method of depreciation?
a. The asset's economic usefulness is the same each year.
b. The repair and maintenance expense is essentially the same each period.
c. The rate of return analysis is enhanced using the straight-line method.
d. Depreciation is a function of time rather than a function of usage.
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
35. The activity method of depreciation
a. is a variable charge approach.
b. assumes that depreciation is a function of the passage of time.
c. conceptually associates cost in terms of input measures.
d. All of the choices are correct.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting and Control: Financial Statement Preparation, IFRS: None
