Asset Management Asset Valuation and Accounting 1 — Questions and Answers
Question 1: Which depreciation method allocates an equal amount of expense each year over the asset's useful life?
- Straight-line depreciation (Correct answer)
- Double declining balance
- Units of production
- Sum-of-years-digits
Correct answer: Straight-line depreciation
Straight-line depreciation divides the asset's cost minus salvage value equally across its useful life.
Question 2: What term describes the cost to replace an existing asset with a new asset of equivalent functionality?
- Book value
- Replacement cost (Correct answer)
- Salvage value
- Residual value
Correct answer: Replacement cost
Replacement cost is the amount required to replace an existing asset with a new one of similar capability.
Question 3: Which accounting standard governs the recognition and measurement of property, plant, and equipment for US public companies?
- ASC 350
- ASC 360 (Correct answer)
- ASC 805
- ASC 606
Correct answer: ASC 360
ASC 360 (Property, Plant, and Equipment) provides guidance on recognition, measurement, and impairment of long-lived assets.
Question 4: What is the term for the estimated amount an asset can be sold for at the end of its useful life?
- Fair value
- Net book value
- Salvage value (Correct answer)
- Historical cost
Correct answer: Salvage value
Salvage value (also called residual value) is the expected proceeds from disposing of an asset after its useful life.
Question 5: An asset impairment test is triggered when which condition is met?
- Asset age exceeds 10 years
- Carrying amount may not be recoverable (Correct answer)
- Depreciation is fully expensed
- Asset is transferred between departments
Correct answer: Carrying amount may not be recoverable
Under ASC 360, an impairment test is required when events indicate the carrying amount may not be recoverable from future cash flows.
Question 6: Which valuation approach estimates an asset's value based on the present value of expected future cash flows?
- Market approach
- Cost approach
- Income approach (Correct answer)
- Comparable sales approach
Correct answer: Income approach
The income approach values an asset by discounting its projected future cash flows to their present value.
Asset Management Asset Valuation and Accounting 1
Which depreciation method allocates an equal amount of expense each year over the asset's useful life?