Long term assets - Depreciation

11 important questions on Long term assets - Depreciation

What is it called when costs of a major asset are allocated to many periods, when those costs will yield revenue?

Depreciation

Is the process of depreciation connected with the market value of the asset?

No

Which two factors impact the declining usefulness of an asset over time?

Physical deterioration
Obsolescence
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What is typical of accelerated depreciation?

The depreciation rate is greater in the early years of the asset's life.

What do most businesses do to depreciate assets acquired at a random point in the year?

They round to the nearest month, or they use a half year rule to depreciate all assets.

What are the two major methods of depreciation?  What does the second type mean?

Straight line and declining balance (depreciating a percentage of the book value rather than a set amount)

How is years of useful life and residual value estimated?

Management uses its best judgement based on history and various standards.

What does management do if an asset's estimate proves to be inaccurate and must be revised?

Revisions apply to future years, but do not change past depreciation.

What is an instance when a company might depreciate assets less in early years of life and more as years go by?

When the asset gets more heavy use in later years.  An example might be a utility company's assets, as population increases.

What credit offsets the cash and accum depreciation debits when an asset is sold?

The asset account

What do international accounting standards permit in place of conventional depreciation?

Regular revaluation

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