Question 1

The book value of an asset is equal to its cost plus accumulated depreciation.

Accepted Answer

The book value of an asset is equal to its cost minus accumulated depreciation.

Question 2

Depreciation is a process of asset valuation.

Accepted Answer

False

Question 3

Sales tax on equipment is not part of the acquisition cost and should not be capitalized.

Accepted Answer

Sales tax on equipment is considered part of the acquisition cost and should be capitalized.

Question 4

The term property, plant and equipment assets refers to long-lived assets acquired for use in business operations, rather than for resale to customers.

Accepted Answer

Property, plant and equipment assets are tangible assets that are purchased or leased for long-term use in business operations, such as land, buildings, machinery, vehicles, and furniture. These assets are not intended for resale to customers, but rather are integral to the production of goods or services offered by the business.

Question 5

If an accelerated depreciation method is used for an asset with a useful life of five years, more depreciation expense would be recorded in the third year than in the fifth year.

Accepted Answer

This is because accelerated depreciation methods, such as the double-declining balance or sum-of-the-years' digits method, allocate more depreciation expense to earlier years of an asset's life, resulting in a higher expense in the third year compared to the fifth year.

Question 6

It is an acceptable accounting practice to treat an expenditure that is not material in dollar amount as an expense of the current period even though the expenditure may benefit several periods.

Accepted Answer

This is generally true as long as the expenditure is not significant enough to impact the financial statements in future periods. It is a matter of judgment for the accountant to determine what constitutes a material amount.

Question 7

Book value represents the cost of an asset that has yet to be allocated to expense.

Accepted Answer

Book value is calculated by subtracting accumulated depreciation from the original cost of an asset. It represents the amount of cost that has not yet been allocated to expense.

Question 8

Land improvements are not subject to depreciation.

Accepted Answer

Land improvements, such as driveways or sidewalks, can be subject to depreciation. However, the land itself is not subject to depreciation as it is considered to have an indefinite useful life.

Question 9

Revenue expenditures are a part of selling and administrative expenses.

Accepted Answer

Revenue expenditures are expenses that are incurred to maintain a company's existing revenue stream. Selling and administrative expenses include all expenses related to selling and administration, such as salaries, rent, and marketing expenses, which are necessary to generate revenue. Therefore, revenue expenditures are a part of selling and administrative expenses.

Question 10

In accounting, depreciation refers to a decline in the asset's current market value, not the allocation of the cost of an asset to expense.

Accepted Answer

In accounting, depreciation refers to the allocation of the cost of an asset to expense over its useful life, not a decline in its current market value.

Question 11

The rule of consistency does not require a company to use the same method of depreciation from year to year for all assets.

Accepted Answer

The rule of consistency only requires a company to use the same method of depreciation for the same asset from year to year, not necessarily for all assets.

Question 12

The formula for the double-declining balance method of depreciation is: Remaining book value times the straight line rate is equal to depreciation expense.

Accepted Answer

The formula for the double-declining balance method of depreciation is: (2 / useful life) times the book value at the beginning of the period is equal to depreciation expense.

Question 13

Just as there are depreciation methods to calculate the decline in value of assets, there are appreciation methods to record the increase in value of assets.

Accepted Answer

The answer of Just as there are depreciation methods to...

Question 14

Charging an expenditure directly to an expense account is based on the assumption that the benefits of that expenditure have been used up in the current period.

Accepted Answer

When an expenditure is charged directly to an expense account, it is assumed that the benefits of that expenditure have been used up in the current period. This is in line with the matching principle in accounting, which requires expenses to be matched with the revenues they generate in the same period.

Question 15

The half-year convention allows us to take six months depreciation during the first year of an asset's life even if the asset was purchased on 25th January.

Accepted Answer

The half-year convention allows us to take six months depreciation during the first year of an asset's life regardless of when the asset was purchased. Therefore, even if the asset was purchased on 25th January, we can still take half-year depreciation for the entire first year.

Question 16

Incidental costs incurred in the purchase of land that are charged to Land Improvements will affect profit at some future time.

Accepted Answer

Incidental costs charged to Land Improvements will increase the cost basis of the land, which will have an impact on profit when the land is sold or disposed of in some other way.

Question 17

The journal entry to record depreciation expense consists of a credit to Accumulated Depreciation and a debit to the asset being depreciated.

Accepted Answer

The answer of The journal entry to record depreciation expense...

Question 18

Any reasonable and necessary expenditures to place a newly acquired PPE asset in service should be debited to a separate asset account.

Accepted Answer

Expenditures necessary to place a newly acquired PPE asset in service should be capitalized and included in the cost of the asset, not debited to a separate asset account.

Question 19

To capitalize an expenditure means charging it to an asset account.

Accepted Answer

Capitalizing an expenditure means recording it as an asset rather than an expense. This is done to spread the cost of the expenditure over its useful life rather than recording the entire cost as an expense in one period.

Question 20

The erroneous recording of a revenue expenditure as a capital expenditure will cause an overstatement of total revenue for the period.

Accepted Answer

The answer of The erroneous recording of a revenue expenditure...

Quiz 9: Property, Plant, and Equipment, Intangible Assets and Natural Resources