Asset Management Asset Valuation and Financial Reporting 2 — Questions and Answers
Question 1: Which valuation approach values an asset by comparing it to similar recently sold assets in the marketplace?
- Income Approach
- Cost Approach
- Market Approach (Correct answer)
- Residual Approach
Correct answer: Market Approach
The market approach derives asset value from observable prices of comparable assets traded in active markets.
Question 2: Under IFRS (as adopted in cross-border US reporting), the revaluation model allows fixed assets to be carried at:
- Historical cost only
- Fair value less subsequent accumulated depreciation (Correct answer)
- Replacement cost plus inflation index
- Salvage value at all times
Correct answer: Fair value less subsequent accumulated depreciation
The IFRS revaluation model permits assets to be remeasured to fair value with changes recorded in other comprehensive income.
Question 3: What does the capital expenditure (CapEx) ratio measure in asset management financial analysis?
- Ratio of debt to equity
- Investment in fixed assets relative to depreciation (Correct answer)
- Operating cash flow to revenue
- Inventory turnover speed
Correct answer: Investment in fixed assets relative to depreciation
The CapEx ratio compares capital spending to depreciation to indicate whether a company is maintaining or growing its asset base.
Question 4: Which US federal tax depreciation system is most commonly used for tangible business property placed in service after 1986?
- ACRS
- MACRS (Correct answer)
- Straight-Line IRS Method
- Units of Production
Correct answer: MACRS
The Modified Accelerated Cost Recovery System (MACRS) is the standard US tax depreciation method allowing faster early-year deductions.
Question 5: An asset's 'salvage value' is best defined as:
- Cost to repair the asset
- Estimated value at end of useful life (Correct answer)
- Insurance replacement amount
- Annual maintenance expense
Correct answer: Estimated value at end of useful life
Salvage value (residual value) is the estimated amount an asset will fetch at disposal after its useful life ends.
Question 6: Which ratio measures how efficiently a company uses its assets to generate revenue?
- Current Ratio
- Asset Turnover Ratio (Correct answer)
- Debt-to-Equity Ratio
- Gross Margin Ratio
Correct answer: Asset Turnover Ratio
Asset turnover ratio divides net revenue by average total assets to show how productively assets generate sales.
Asset Management Asset Valuation and Financial Reporting 2
Which valuation approach values an asset by comparing it to similar recently sold assets in the marketplace?