Questions and Answers
A change in the estimated useful life of a plant asset requires a restatement of prior years' depreciation.
False
Additions and improvements to a plant asset that increase the asset's operating efficiency are generally capitalized.
True
Ordinary repairs should be capitalized as assets.
False
A characteristic of capital expenditures is that the expenditures occur infrequently during the period of ownership.
Signup and view all the answers
Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business.
Signup and view all the answers
The book value of a plant asset is the amount originally paid for the asset less depreciation.
Signup and view all the answers
A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset sale is less than the asset's book value.
Signup and view all the answers
All plant assets must be depreciated for accounting purposes.
Signup and view all the answers
A plant asset can be removed from the books at any time regardless of its depreciation status.
Signup and view all the answers
Land improvements are generally charged to the Land account.
Signup and view all the answers
Recording depreciation on plant assets affects only the income statement.
Signup and view all the answers
The depreciable cost of a plant asset is its original cost minus obsolescence.
Signup and view all the answers
The Accumulated Depreciation account represents a cash fund available to replace plant assets.
Signup and view all the answers
Using the units-of-activity method of depreciating factory equipment will always result in less depreciation expense being recorded over the life of the asset.
Signup and view all the answers
Salvage value is always subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.
Signup and view all the answers
Under the double-declining-balance method, the depreciation rate used each year decreases over time.
Signup and view all the answers
Study Notes
Plant Assets
- All plant assets must be depreciated for accounting purposes.
- Costs for clearing, draining, filling, and grading land should be charged to a Land Improvements account.
Depreciation
- Recording depreciation on plant assets affects the balance sheet and the income statement.
- Depreciation is an application of the matching principle.
- Plant asset cost and useful life are based on estimates when calculating depreciation.
- Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method.
- The declining-balance method is an accelerated depreciation method that depreciates an asset in a shorter period of time than its useful life.
Depreciation Methods
- The units-of-activity method generally results in more depreciation expense being recorded over the life of the asset than the straight-line method.
- Under the double-declining-balance method, the depreciation rate used each year remains constant.
Changes in Estimates
- A change in the estimated useful life of a plant asset may cause a change in depreciation recognized in current and future periods, but not to prior periods.
- A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.
- To determine a new depreciation amount after a change in estimate, the asset's remaining depreciable cost is divided by its remaining useful life.
Expenditures and Capitalization
- Additions and improvements to a plant asset that increase its operating efficiency, productive capacity, or expected useful life are generally capitalized.
- Capital expenditures are investments in productive facilities.
- Ordinary repairs should be recognized as revenue expenditures when incurred.
Asset Disposal
- If proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs.
- A loss on disposal of a plant asset can only occur if the cash proceeds received are less than the asset's book value.
- A loss on disposal is calculated in the same way as a result of a sale or retirement.
- A plant asset does not need to be fully depreciated before it can be removed from the books.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz covers the accounting principles for plant assets, including depreciation, and how it affects financial statements. It also touches on the estimation of useful life and salvage value.
