Depreciation of Entity Assets

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Which depreciation method results in a decreasing charge over the useful life?

Sum-of-the-years'-digits method

Straight-line method

Units of production method

Double-declining balance method (correct)

Why is a depreciation method based on revenue generated by an activity not appropriate?

It ensures even allocation of cost

It is consistent with IAS 36 guidelines

It reflects factors unrelated to asset consumption (correct)

It simplifies useful life determination

What does an entity consider when selecting a depreciation method?

Historical cost of the asset

Current market trends

Expected pattern of consumption of future economic benefits (correct)

Tax implications

Why is it important to apply the selected depreciation method consistently over periods?

To reflect expected pattern of consumption accurately Signup and view all the answers

Which factor may affect the price component of revenue but not the way an asset is consumed?

Inflation Signup and view all the answers

How does an entity determine if an item of property, plant, and equipment is impaired?

By following IAS 36 Impairment of Assets Signup and view all the answers

What may be necessary to depreciate the remainder in a manner that represents the consumption pattern and useful life of its parts?

Approximation techniques Signup and view all the answers

When can an entity choose to depreciate separately the parts of an item?

When the parts have varying expectations Signup and view all the answers

Where should the depreciation charge for each period be recognized?

Profit or loss Signup and view all the answers

In what situation is the depreciation charge included in the carrying amount of another asset?

When producing other assets absorbing future economic benefits Signup and view all the answers

How is the depreciation of manufacturing plant and equipment accounted for in the costs of conversion of inventories?

Considered part of inventory costs Signup and view all the answers

In what circumstance may depreciation of property, plant, and equipment used for development activities be included in the cost of an intangible asset?

Recognized under IAS 38 Intangible Assets Signup and view all the answers

When should an entity recognise the cost of replacing part of an item of property, plant and equipment?

When the recognition criteria are met and the replacement cost is incurred. Signup and view all the answers

What happens to the carrying amount of parts that are replaced in an item of property, plant, and equipment?

It is derecognised. Signup and view all the answers

When should the cost of performing regular major inspections for faults be recognised in the carrying amount of an item of property, plant, and equipment?

When the recognition criteria are satisfied for each major inspection. Signup and view all the answers

What is derecognised in an item of property, plant, and equipment after a major inspection is performed?

The cost of previous inspections (excluding physical parts). Signup and view all the answers

How does an entity determine the cost of a future similar inspection for an item of property, plant, and equipment?

By estimating based on historical data or industry standards. Signup and view all the answers

What does the recognition principle in paragraph 7 dictate when it comes to allocating costs to property, plant, and equipment?

Costs should be allocated when recognition criteria are met and costs are incurred. Signup and view all the answers