WGU D104 OA2 Practice Test
Depreciation is basically a decline in value
Depreciation is a means of Cost allocation
When is an asset depreciated periods when benefit is expected from the asset
What is important about cost allocation approach it recognizes the expense in periods expected to benefit from the asset since
fluctuations in fair value are uncertain and difficult to measure.
What is depletion? the reduction in the cost of natural resources over a period of time.
The expiration of intangible assets is called amortization
The base established for depreciation is a function of two Original cost and salvage value
factors
What is salvage value the estimated amount that a company will receive when it sells an asset from
service
Why do companies retire assets? physical and economic factors
Physical factors are wear and tear, decay, and casualties that make it difficult for the asset to perform
indefinitely.
economic factors obsolescence
Inadequacy results when? an asset ceases to be useful to a company because the demands of the firm
have changed.
Supersession is when? the replacement of one asset with another more efficient and economical asset.
Obsolescence is when? any other reason other than inadequacy or supersession.
formula for straight-line method (cost - salvage)/number of years
formula for service hours method {(Cost-Salvage)/total service hours} x hours used
, WGU D104 OA2 Practice Test
formula for units of output method {(cost - salvage)/total units} x units produced
activity method focuses on ___, rather than passage of use or productivity
time
other names for activity method variable-charge or units-of-production approach
cost association relies on output
example of input measure machine hours
activity method formula (cost less salvage value) x hours this year/ total estimated hours
straight line depreciation focuses on ___, rather than time
usage
What are two bad things about straight line deprecation Assumptions:
the asset's economic usefulness is the same each year
the maintenance and repair expense is essentially the same each period.
Depreciation is a system of cost allocation in a rational and systematic manner
primary methods of depreciation are? accelerated SL, SYD, DDB, units/hours of production
depreciation
You always subtract salvage value except when you use DDB
which depreciation method?
the decreasing-charge methods of depreciation provide higher depreciation cost in earlier years and lower charges in later periods
Why would you use accelerated depreciation asset is most productive in its earlier years
Sum of the years digits method formula # of years remaining x (C-S)
sum of years
ex) 1 + 2 + 3 + 4 = 10
Decreasing charge methods are often called accelerated depreciation methods
What are the two accelerated methods? Sum of the years digits
declining balance
, WGU D104 OA2 Practice Test
the double declining balance method depreciates assets straight line rate
at twice the
Double declining method is double the SL rate
Why would a company switch from declining balance to ensure they they depreciate the asset only to its salvage value
method to SL method near the end of the asset's useful
life?
two special methods for depreciation are group and composite
hybrid or combination
what's the reasoning for using special depreciation a company's assets have unique characteristics, or industry behavior
methods?
what is a method for depreciating multiple-asset group and composite
accounts
when would you use the group method when assets are similar in nature and have approximately the same useful lives
when would you use composite approach when assets are dissimilar and have different lives
if you want to find a single unit cost, which method would group
you use?
for composite and group methods, what are you Find an average and depreciate on that basis
essentially looking for?
composite depreciation rate formula Total depreciation per year for group
total cost of assets for group
The length of time it takes a company to depreciate its composite life
assets on a composite basis is called
where would you put gain or loss of an asset if you retire Accumulated depreciation
that asset before or after the average service life of the
group has been reached?
what is a good thing about group/composite method simplifies bookkeeping and averages out errors caused by over or
underdepreciation
Advantages of unit method compared to group or simplifies computation mathematically
composite methods?
identifies gains and losses on disposal
isolates depreciation on idle equipment
it represents the best estimate of the depreciation of each asset, not the result of
averaging the cost over a longer period of time
Depreciation is basically a decline in value
Depreciation is a means of Cost allocation
When is an asset depreciated periods when benefit is expected from the asset
What is important about cost allocation approach it recognizes the expense in periods expected to benefit from the asset since
fluctuations in fair value are uncertain and difficult to measure.
What is depletion? the reduction in the cost of natural resources over a period of time.
The expiration of intangible assets is called amortization
The base established for depreciation is a function of two Original cost and salvage value
factors
What is salvage value the estimated amount that a company will receive when it sells an asset from
service
Why do companies retire assets? physical and economic factors
Physical factors are wear and tear, decay, and casualties that make it difficult for the asset to perform
indefinitely.
economic factors obsolescence
Inadequacy results when? an asset ceases to be useful to a company because the demands of the firm
have changed.
Supersession is when? the replacement of one asset with another more efficient and economical asset.
Obsolescence is when? any other reason other than inadequacy or supersession.
formula for straight-line method (cost - salvage)/number of years
formula for service hours method {(Cost-Salvage)/total service hours} x hours used
, WGU D104 OA2 Practice Test
formula for units of output method {(cost - salvage)/total units} x units produced
activity method focuses on ___, rather than passage of use or productivity
time
other names for activity method variable-charge or units-of-production approach
cost association relies on output
example of input measure machine hours
activity method formula (cost less salvage value) x hours this year/ total estimated hours
straight line depreciation focuses on ___, rather than time
usage
What are two bad things about straight line deprecation Assumptions:
the asset's economic usefulness is the same each year
the maintenance and repair expense is essentially the same each period.
Depreciation is a system of cost allocation in a rational and systematic manner
primary methods of depreciation are? accelerated SL, SYD, DDB, units/hours of production
depreciation
You always subtract salvage value except when you use DDB
which depreciation method?
the decreasing-charge methods of depreciation provide higher depreciation cost in earlier years and lower charges in later periods
Why would you use accelerated depreciation asset is most productive in its earlier years
Sum of the years digits method formula # of years remaining x (C-S)
sum of years
ex) 1 + 2 + 3 + 4 = 10
Decreasing charge methods are often called accelerated depreciation methods
What are the two accelerated methods? Sum of the years digits
declining balance
, WGU D104 OA2 Practice Test
the double declining balance method depreciates assets straight line rate
at twice the
Double declining method is double the SL rate
Why would a company switch from declining balance to ensure they they depreciate the asset only to its salvage value
method to SL method near the end of the asset's useful
life?
two special methods for depreciation are group and composite
hybrid or combination
what's the reasoning for using special depreciation a company's assets have unique characteristics, or industry behavior
methods?
what is a method for depreciating multiple-asset group and composite
accounts
when would you use the group method when assets are similar in nature and have approximately the same useful lives
when would you use composite approach when assets are dissimilar and have different lives
if you want to find a single unit cost, which method would group
you use?
for composite and group methods, what are you Find an average and depreciate on that basis
essentially looking for?
composite depreciation rate formula Total depreciation per year for group
total cost of assets for group
The length of time it takes a company to depreciate its composite life
assets on a composite basis is called
where would you put gain or loss of an asset if you retire Accumulated depreciation
that asset before or after the average service life of the
group has been reached?
what is a good thing about group/composite method simplifies bookkeeping and averages out errors caused by over or
underdepreciation
Advantages of unit method compared to group or simplifies computation mathematically
composite methods?
identifies gains and losses on disposal
isolates depreciation on idle equipment
it represents the best estimate of the depreciation of each asset, not the result of
averaging the cost over a longer period of time
