Asset Management Asset Valuation and Accounting 2 — Questions and Answers
Question 1: What is 'net book value' of an asset?
- Original cost plus interest
- Original cost minus accumulated depreciation (Correct answer)
- Market value at year end
- Replacement cost minus salvage value
Correct answer: Original cost minus accumulated depreciation
Net book value equals the original acquisition cost of an asset minus all accumulated depreciation recorded to date.
Question 2: Which method of depreciation results in higher expense in the early years of an asset's life?
- Straight-line
- Units of production
- Double declining balance (Correct answer)
- Modified straight-line
Correct answer: Double declining balance
The double declining balance method applies twice the straight-line rate to the declining book value, front-loading depreciation.
Question 3: When an asset is sold for more than its net book value, the difference is recorded as:
- Depreciation expense
- Capital expenditure
- Gain on disposal (Correct answer)
- Deferred revenue
Correct answer: Gain on disposal
A gain on disposal is recognized when sale proceeds exceed the asset's net book value at the time of sale.
Question 4: Which type of expenditure extends an asset's useful life and is capitalized rather than expensed?
- Routine maintenance
- Emergency repair
- Capital improvement (Correct answer)
- Operating lease payment
Correct answer: Capital improvement
Capital improvements that extend useful life or add new capability are capitalized and depreciated over the remaining life.
Question 5: What is the primary purpose of an asset register in financial asset management?
- Track employee assignments
- Record all fixed assets with cost, depreciation, and location (Correct answer)
- Monitor supplier contracts
- Log maintenance work orders
Correct answer: Record all fixed assets with cost, depreciation, and location
An asset register is a detailed inventory of fixed assets that records acquisition cost, depreciation, location, and disposal details.
Question 6: Under GAAP, which cost is NOT capitalized as part of an asset's initial value?
- Purchase price
- Freight and shipping costs
- Installation costs
- Annual insurance premium (Correct answer)
Correct answer: Annual insurance premium
Annual insurance premiums are period costs expensed as incurred, not capitalized as part of the asset's cost basis.
Asset Management Asset Valuation and Accounting 2
What is 'net book value' of an asset?