Chapter 38 Depreciation

The difference between the Carrying amount of a property and any remaining value when it is retired or worn out is an expense that should be distributed to the periods during which the asset is used.

False, *Original Cost

I. Two kinds of depreciation are physical depreciation and functional or economic depreciation. II. Physical depreciation is related to the depreciable assets wear and tear and deterioration over a period. III. Physical depreciation results to the ultimate retirement of the property or termination of the service life of the asset. IV. Functional or economic depreciation arises from inadequacy,supersession and obsolescence. V. Supersession encompasses inadequacy and obsolence.

*Obsolescence encompasses inadequacy and supersession.

I. Depreciation is an expense. II. It may be a part of the cost of good manufactured or an operating expense. III. The depreciation charge for each period shall be recognized as expense even if it is included in the carrying amount of another asset. IV. Depreciation can be a part of the cost of good manufactured but not in operating expense. V. All PPE shall be depreciated. A. IV,II B. I,II,III,IV C. V D. III, IV E. II,III

*unless if it is included in the carrying amount of another asset.

Physical depreciation may be caused by: I. Wear and tear due to frequent use II. Passage of time due to nonuse III. Action of the elements such as wind, sunshine, rain or dust IV. Casualty or accident such as fire, flood, earthquake and other natural disaster. V. Disease or decay- This physical cause is applicable to animals and wooden buildings. A. I,II, III, IV, V B. I,III,IV C. I, II, III, V D. I, III, IV, V E. II,III, IV

A.

Which Statement is True? I. Depreciation of an asset begins when it is available for use, meaning, when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by management. II. Depreciation ceases when the asset is derecognized. III. Depreciation does not cease when the asset becomes idle temporarily. IV. Temporary idle activity does not preclude depreciating the asset as future economic benefits are consumed not only through usage but also through wear and tear and obsolescence. V. Temporary idle activity does preclude depreciating the asset as future economic benefits are consumed not only through usage but also through wear and tear and obsolescence. A. I,II, III, IV B. I,III,IV C. I, II, III, V D. I, III, IV, V E. II,III, IV

A. V. *does not preclude

Which Stament is False? I. Except for nonexhaustible land, all property shall be depreciated on a systematic basis over the useful life of the asset respective of the earnings of the entity. II. If depreciation is omitted when the entity has a loss and recognized when the entity has a gain the FS would be mistated. III. The omission of depreciation may somehow impair legal capital if and when dividends are declared out of earnings after provision for depreciation. IV. The omission of depreciation may somehow impair legal capital even dividends are declared out of earnings after provision for depreciation. V. Except for nonexhaustible land, all property shall be depreciated on a systematic basis over the useful life of the asset irrespective of the earnings of the entity. A. IV,II B. I,III,IV C. V D. III, IV E. II,III

B. I. *irrespective of the earnings of the entity. III. *before provision for depreciation. IV. *if and when dividends are declared out of earnings before provision for depreciation.

Which of the statement is False? I. Depreciation is defined as the systematic allocation of the depreciable amount of an asset over the useful life. II. Depreciation is a matter of valuation. III. Depreciation is not a matter of cost allocation in recognition of the exhaustion of the useful life of an item of property, plant and equipment. IV. The point of depreciation is to have each period benefitting from the use of the asset bear an equitable share of the asset Cost. V. None of the choices. A. IV,II B. I,II,III,IV C. V D. III, IV E. II,III

E. II. *not so much a matter of valuation. III. *is a matter of cost allocation in recognition of the exhaustion of the useful life of an item of property, plant and equipment.

Property, plant and equipment, including land, normally are usable for a number of years after which the assets have relatively bigger value either for service or for sale.

False, *excluding *little

Which Stament is False? I. PFRS 5, paragraph 25, provides that if the asset is "classified as held for use" depreciation shall be discontinued. II. Depreciation does not cease when the asset becomes idle temporarily. III. Depreciation cease when the asset becomes idle temporarily. IV. Depreciable amount or depreciable cost is the cost of an asset or other amount substituted for cost, plus the residual value. V. Each part of an item of property, plant and equipment with a cost that is insignificant in relation to the total cost of the item shall be depreciated separately. A. IV,II B. I,III,IV C. I, II, III, V D. I, III, IV, V E. II,III

I. *classified as held for sale III. *does not cease IV. *minus the residual value. V. significant in relation to the total cost of the item shall be depreciated separately.

I. Depreciable amount or depreciable cost is the cost of an asset or other amount substituted for cost, less the residual value. II. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated accordingly. The entity also depreciates separately the remainder of the item and the remainder consists of the parts of the item that are individually not significant. Residual value is the estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated cost of disposal, if the asset were already of the age and condition expected at the end of the useful life. Simply stated, residual value is the estimated net amount currently obtainable if the asset is at the end of the useful life. The residual value of an asset shall be reviewed at least at each financial year-end and if expectation differs from previous estimate, the change shall be accounted for as a change in an accounting estimate. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount.

II. *shall be depreciated separately.

The portion that is allocated to expense in a particular period is referred to by three different terms namely: I. Depreciation, Systematic Allocation, Amortization II. Depletion, Amortization, Depreciation III. Amortization, Sum of Years Digit, Depreciation IV. Depreciation, Depletion, Amortization V. All of the choices.

IV.

Which of the statement is True? I. Depreciation refers to property, plant and equipment, II. Depletion to wasting assets III. Amortization to intangible assets. IV. The three terms are similar in meaning. The only difference lies in the type of asset involved. V. All of the choices.

V.