AFC Depreciation and Amortization 2

Question 1

For an asset with a 4-year useful life, what is the sum of years digits used in the sum-of-years-digits depreciation method?

Accepted Answer

10

Answer

The sum of years digits for a 4-year life is 1 + 2 + 3 + 4 = 10, which becomes the denominator in calculating each year's depreciation fraction.

Question 2

Under the double-declining balance method, the depreciation rate applied to book value is:

Accepted Answer

Twice the straight-line rate

Answer

The double-declining balance rate is calculated as (1 / useful life) × 2, making it exactly twice the equivalent straight-line rate.

Question 3

Which type of long-term asset is subject to depletion rather than depreciation?

Accepted Answer

Natural resources such as oil or timber

Answer

Depletion is used to allocate the cost of natural resources (such as oil, gas, coal, or timber) as they are extracted or harvested over time.

Question 4

When an asset is fully depreciated, its book value equals:

Accepted Answer

Its salvage value

Answer

Depreciation stops when the book value equals the salvage value; a fully depreciated asset carries a book value equal to its estimated salvage value.

Question 5

How is depreciation expense classified on the income statement?

Accepted Answer

A non-cash expense that reduces net income

Answer

Depreciation is a non-cash expense because it reduces net income without involving an actual cash outflow during the period it is recorded.

AFC - Accounting Fundamentals Certification Practice Test