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CH-11 Practice Quiz Wiley Depreciation, Impairment

Intermediate Financial Accounting I (University of Toronto)

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CHAPTER-11 PRACTICE QUIZ WILEY

1. Depreciation is?
R= a means of cost allocation
2. Which of the following statements regarding the concept of depreciation is NOT correct?
a) It does not take into account factors such as obsolescence b) It requires various estimates c) It
continuously decreases the asset’s net book value
R= It ensures that the asset’s net book value will equal its recoverable value
3. The depreciation method that considers depreciation a function of the passage of time, rather
than a function of usage, is the?
R= Straight-line method
4. The depreciation method that does not deduct residual value in calculating depreciation is the?
a) Straight-line method b) Activity-based method
R= Diminishing-balance method
5. Which of the following statements regarding the concept of depreciation is not correct?
a) It does not take into account factors such as obsolescence b) It requires various estimates c) It
continuously decreases the asset’s net book value
R= It ensures that the net book value of the asset will equal its recoverable value
6. Normally, depletion expense is calculated using which allocation approach?
R= An activity-based method
7. Which of the following statements regarding the use of fair value (instead of the use of
amortized or depreciated cost) for long-lived assets is correct?
R= The use of fair value tends to provide more relevant information
8. A change in the estimates of the expected pattern of consumption of an asset’s benefits, useful
life, and residual value will require adjustments to depreciation expense related to that asset.
Which of the following is the correct treatment of an estimate change?
R= The company should account for a change in estimate prospectively
9. Various events and changes in circumstances might lead to the impairment of a long-lived
asset, including the following: a) A significant adverse change in legal factors or in the business climate
that affects an asset’s value b) A significant decrease in an asset’s market value c) A significant change in
the extent or manner in which an asset is used
R= All of the above may indicate impairment
10. Using the cost recovery impairment model (ASPE), an impairment loss is the excess of the
carrying amount of an asset over the:
R= Asset’s fair value
11. Using the rational entity impairment model (IFRS), an impairment loss is the excess of the
carrying amount of an asset over its recoverable amount. The recoverable amount is defined as:
R= The higher of its value in use and its fair value less costs to sell
12. The core difference between the rational entity impairment model (IFRS) and the cost
recovery impairment model (ASPE) is that:
R= The IFRS approach better reflects the economic circumstances underlying the asset’s usefulness to the
entity
13. Which of the following is NOT a true statement about long-lived assets classified as held for
sale? a) If certain criteria are met, the losses and subsequent recoveries from the long-lived asset are
reported as part of discontinued operations on the income statement b) These assets should be reported at
the lower of their carrying amount and fair value less costs to sell c) A long-lived asset classified as held for
sale will continue to be written down and further losses will be recognized if the net amount expected from
the asset continues to drop
R= They continue to be depreciated up to the date of sale
14. Which of the following must be recorded in the accounting records when an asset that is NOT
held for sale is derecognized? a) Removal of the asset b) Depreciation up until the date of derecognition
c) Gain or loss on derecognition
R= All of the above items must be recorded in the accounting records
15. The rate of return on assets is calculated by dividing?
R= Net income by average total assets
16. The depreciable amount of an asset is its original cost?
R= Less its residual value
17. All of the following are economic factors related to depreciation except:
a) Inadequacy b) Obsolescence c) Supersession
R= Wear and tear
18. Economic factors that shorten the service life of an asset include:
a) Inadequacy b) Obsolescence c) Supersession
R= All of these

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19. The rational entity model in comparison to the cost recovery model:
R= It is more neutral.
20. Obsolescence is the replacement of one asset with another more efficient and economical
asset:
R= False
21. Total depreciation over an asset’s life cannot exceed an amount equal to cost minus estimated
salvage value:
R= True
22. The disclosure requirements for private companies are usually more comprehensive than for
their public counterparts:
R= False
23. The rational-entry approach used by IFRS recognizes that an asset is impaired if its carrying
amount exceeds its recoverable amount, whereas the cost recovery approach used by ASPE
recognizes that an asset is impaired if its carrying amount exceeds the net future undiscounted
cash flows from its future use and disposal:
R= True
24. The capital cost allowance method is most similar to which depreciation approach?
R= Declining-balance

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