Asset Management Asset Valuation and Financial Reporting 1 — Questions and Answers
Question 1: Which valuation method estimates an asset's worth based on the present value of its expected future cash flows?
- Discounted Cash Flow (DCF) (Correct answer)
- Book Value Method
- Market Comparables
- Replacement Cost Method
Correct answer: Discounted Cash Flow (DCF)
DCF valuation discounts projected future cash flows back to present value using an appropriate discount rate.
Question 2: Under US GAAP, which depreciation method allocates equal expense amounts each accounting period over the asset's useful life?
- Units of Production
- Double Declining Balance
- Straight-Line Depreciation (Correct answer)
- Sum-of-the-Years-Digits
Correct answer: Straight-Line Depreciation
Straight-line depreciation spreads cost evenly across each year of the asset's useful life.
Question 3: What term describes the difference between an asset's original purchase cost and its accumulated depreciation on the balance sheet?
- Fair Market Value
- Net Book Value (Correct answer)
- Salvage Value
- Replacement Cost
Correct answer: Net Book Value
Net book value (or carrying value) equals historical cost minus total accumulated depreciation recorded to date.
Question 4: ASC 360 (US GAAP) requires impairment testing for long-lived assets when which condition exists?
- Asset age exceeds 10 years
- Carrying amount may not be recoverable (Correct answer)
- Market interest rates rise above 5%
- Annual depreciation exceeds 20% of cost
Correct answer: Carrying amount may not be recoverable
ASC 360 triggers impairment review when events or changes in circumstances indicate the carrying amount may not be recoverable.
Question 5: Which financial statement directly shows the net book value of a company's long-term assets?
- Income Statement
- Cash Flow Statement
- Balance Sheet (Correct answer)
- Statement of Retained Earnings
Correct answer: Balance Sheet
The balance sheet (statement of financial position) reports non-current assets at cost less accumulated depreciation.
Question 6: What is the primary purpose of an asset register in financial reporting?
- Track employee headcount
- Record and verify existence of all fixed assets (Correct answer)
- Monitor customer receivables
- Schedule vendor payments
Correct answer: Record and verify existence of all fixed assets
An asset register maintains a comprehensive record of all fixed assets, supporting accurate depreciation and audit trails.
Asset Management Asset Valuation and Financial Reporting 1
Which valuation method estimates an asset's worth based on the present value of its expected future cash flows?