Chapter 11 Part 1

An accelerated depreciation method is appropriate when the asset's economic usefulness is the same each year.

F

An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the expected future net cash flows from the use of that asset.

F

Companies frequently use the composite approach when the assets are similar in nature and have approximately the same useful lives.

F

Depreciation is based on the decline in the fair market value of the asset.

F

Inadequacy is the replacement of one asset with another more efficient and economical asset.

F

Normally, companies compute depletion on a straight-line basis.

F

The asset turnover ratio is computed by dividing net sales by ending total assets.

F

The three factors involved in the depreciation process are the depreciation base, the useful life, and the risk of obsolescence.

F

The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.

F

Changes in estimates are handled prospectively by dividing the asset's book value less any salvage value by the remaining estimated life.

T

Depreciation is a means of cost allocation, not a matter of valuation.

T

Depreciation, depletion, and amortization all involve the allocation of the cost of a long-lived asset to expense.

T

Gains or losses on disposals of assets do not distort periodic income when the group or composite method is used to compute depreciation.

T

Impaired assets held for disposal should be reported at the lower of cost or net realizable value.

T

Intangible development costs and restoration costs are part of the depletion base.

T

The cost of an asset less its salvage value is its depreciation base.

T

The declining-balance method does not deduct the salvage value in computing the depreciation base.

T

The first step in determining whether an impairment has occurred is to estimate the future net cash flows expected from the use of that asset and its eventual disposition.

T

The major objection to the straight-line method is that it assumes the asset's economic usefulness and repair expense are the same each year.

T

The profit margin on sales ratio is a measure for analyzing the use of property, plant, and equipment.

T