Asset Management Asset Valuation and Accounting 3

Question 1

What does the term 'useful life' mean in asset accounting?

Accepted Answer

The period over which the asset is expected to provide economic benefit

Answer

Useful life is the estimated period an asset will generate economic benefits for the organization.

Question 2

Which financial ratio measures how efficiently a company uses its assets to generate revenue?

Accepted Answer

Asset turnover ratio

Answer

The asset turnover ratio equals revenue divided by average total assets, measuring how efficiently assets generate sales.

Question 3

A capitalization threshold is used in asset accounting to:

Accepted Answer

Determine the minimum cost at which items are recorded as fixed assets

Answer

A capitalization threshold defines the minimum cost at which a purchase is recorded as a fixed asset rather than expensed immediately.

Question 4

What is the effect of a fully depreciated asset that is still in service?

Accepted Answer

No further depreciation is recorded; it remains on books at salvage value

Answer

Once fully depreciated, no additional expense is recorded and the asset stays on the books at its salvage (residual) value.

Question 5

Which internal control is most important for preventing ghost assets in an asset register?

Accepted Answer

Physical asset verification and reconciliation

Answer

Periodic physical verification compares assets on hand with the register to identify ghost (non-existent) or missing assets.

Asset Management Practice Test