Podcast
Questions and Answers
Which statement regarding the depreciation of fixed assets is correct?
Which statement regarding the depreciation of fixed assets is correct?
- Depreciation applies to both tangible and intangible assets uniformly.
- Depreciation is only recognized when the asset is sold.
- Depreciation reflects the gradual increase in the value of fixed assets.
- Depreciation begins on the first day an asset is utilized. (correct)
What is the primary method used to allocate the cost of tangible assets like plant and equipment over their useful life?
What is the primary method used to allocate the cost of tangible assets like plant and equipment over their useful life?
- Amortisation
- Depreciation (correct)
- Expensing
- Depletion
Which of the following assets is not subject to depreciation?
Which of the following assets is not subject to depreciation?
- Motor vehicles
- Furniture and fixtures
- Natural resources
- Land (correct)
Which term refers specifically to the allocation of the cost of natural resources?
Which term refers specifically to the allocation of the cost of natural resources?
Which of the following statements is true regarding intangible assets?
Which of the following statements is true regarding intangible assets?
What is the carrying amount (net book value) at the end of year 3 based on straight-line depreciation?
What is the carrying amount (net book value) at the end of year 3 based on straight-line depreciation?
Which principle emphasizes that potential gains should not be recorded until they are realized?
Which principle emphasizes that potential gains should not be recorded until they are realized?
In the context of provisions, what is the effect of increasing a provision on profit?
In the context of provisions, what is the effect of increasing a provision on profit?
What type of assets is covered under provisions for possible losses?
What type of assets is covered under provisions for possible losses?
In year 2 of the depreciation table, what is the cumulative depreciation amount recorded?
In year 2 of the depreciation table, what is the cumulative depreciation amount recorded?
What is the primary purpose of adjusting journal entries in accounting?
What is the primary purpose of adjusting journal entries in accounting?
Which type of adjusting entry involves transactions that are already recorded but not yet earned?
Which type of adjusting entry involves transactions that are already recorded but not yet earned?
How do accruals relate to the recording of revenues and expenses?
How do accruals relate to the recording of revenues and expenses?
In the context of adjusting entries, which of the following best describes 'estimates'?
In the context of adjusting entries, which of the following best describes 'estimates'?
Which financial statement accounts are commonly impacted by adjusting entries?
Which financial statement accounts are commonly impacted by adjusting entries?
What factors need to be considered to calculate a depreciation charge for an asset?
What factors need to be considered to calculate a depreciation charge for an asset?
Using the straight-line method, how much is the annual depreciation for an asset that costs €35,000 with a salvage value of €3,000 and a useful life of 4 years?
Using the straight-line method, how much is the annual depreciation for an asset that costs €35,000 with a salvage value of €3,000 and a useful life of 4 years?
What is the net book value of an asset after one year if its gross value is €200,000 and the depreciation expense for the year is €20,000?
What is the net book value of an asset after one year if its gross value is €200,000 and the depreciation expense for the year is €20,000?
Which of the following best describes the depreciable amount of an asset?
Which of the following best describes the depreciable amount of an asset?
What is the correct journal entry for recording the annual depreciation expense for a piece of equipment valued at €35,000 with a depreciation expense of €8,000?
What is the correct journal entry for recording the annual depreciation expense for a piece of equipment valued at €35,000 with a depreciation expense of €8,000?
Flashcards
Adjusting Entries
Adjusting Entries
Entries made at the end of an accounting period to ensure financial statements reflect the accrual method of accounting.
Accrual Accounting
Accrual Accounting
Recording revenues when earned and expenses when incurred, regardless of when cash is received or paid.
Accruals
Accruals
Revenues or expenses earned or incurred but not yet recorded in a standard transaction.
Deferrals
Deferrals
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Depreciation
Depreciation
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Straight-line depreciation
Straight-line depreciation
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Depreciation expense
Depreciation expense
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Carrying amount
Carrying amount
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Impairment of assets
Impairment of assets
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Provision for possible losses
Provision for possible losses
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Fixed Asset
Fixed Asset
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Amortisation
Amortisation
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Depletion
Depletion
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Depreciable Amount
Depreciable Amount
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Straight-line method
Straight-line method
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Residual Value
Residual Value
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Study Notes
Adjusting Entries
- Adjusting journal entries record transactions that occurred but weren't initially recorded correctly according to accrual accounting.
- These entries are made at the end of an accounting period to comply with matching and revenue recognition principles.
- Common types include accruals (revenues and expenses not yet received/paid)
- Examples include prepaid expenses and accrued revenues.
Depreciation
- Fixed assets lose value over time.
- Depreciation represents the consumption of the fixed asset, reflecting its gradual loss of value.
- Depreciation begins on the first day of an asset's use.
- To calculate depreciation:
- Determine the asset's cost or fair value.
- Calculate the asset's useful life.
- Establish the asset's residual value.
- Select a depreciation method (e.g., straight-line).
- Annual Depreciation = (Original Cost - Salvage Value) / Useful Life
Types of Non-Current Assets
- Tangible assets: Land, plant and equipment, fixtures, motor vehicles, and natural resources.
- Land is not depreciated.
- Intangible assets: Goodwill, patents, copyrights, leasehold improvements, and research and development.
Impairment of Assets/Provisions
- Based on prudence/conservatism principle, companies must record expected losses but not potential gains.
- Asset impairment involves recognizing potential reductions in asset value.
- Provisions address potential liabilities with uncertain timing or amounts, like legal disputes or sales returns.
- Provision for possible losses addresses other risks of loss in value, such as increased liabilities.
- Increasing provisions reduces profit, treated as an expense.
- Decreasing provisions increases profit, treated as a revenue.
Straight-Line Depreciation Example
- A business buys equipment for €35,000 with a 4-year useful life and €3,000 salvage value.
- Annual Depreciation = (€35,000 - €3,000) / 4 = €8,000
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Description
This quiz covers essential concepts in accounting, specifically focusing on adjusting entries and depreciation of fixed assets. You'll learn about accruals, the impact of non-current assets over time, and methods for calculating depreciation. Test your understanding of these fundamental accounting principles.
