16 Questions
What does the term 'depreciation' refer to in accountancy?
The allocation of the original cost of assets to periods in which they are used
How does depreciation affect the balance sheet of a business or entity?
It decreases the net income
Why do businesses depreciate long-term assets?
To decrease their tax liability
How is the cost of a tangible asset allocated in accounting statements?
As depreciation expense among the periods in which the asset is expected to be used
What is the impact of depreciating an asset on the income statement?
It decreases the net income reported
What is one of the purposes of allocating the original cost of assets to periods in which they are used?
To accurately match revenue with expenses
What is depreciation?
A method of allocating the net cost of an asset to the periods in which the organization benefits from its use
How is the depreciable basis generally calculated?
As the amount paid for the asset, including all costs related to acquiring and bringing the asset into use
What criteria are involved in recording depreciation expense in financial reporting?
Cost, expected salvage value, estimated useful life, and method of apportioning cost
What is an impairment charge in accounting?
A nonrecurring charge related to the unexpected decrease in fair value of an asset
What is considered when determining impairment charges?
Unexpected decrease in fair value and change in manner of asset use
What does the depreciable basis generally include?
All costs related to acquiring and bringing the asset into use
What is generally not ignored when calculating depreciable basis in some countries or for some purposes?
Salvage value
When are impairment charges recognized according to accounting rules?
When assets' carrying amount decreases unexpectedly
What does depreciation determine about an asset's value in the balance sheet?
Value placed on the asset in the balance sheet
What is included in recording depreciation expense?
Current period's allocation of costs related to assets
Test your knowledge of the concepts of depreciation in accountancy, including the actual reduction in the fair value of assets and the allocation of original costs to periods of use. Understand the methods and principles related to depreciation in accounting.
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