Asset Management Managing Asset Lifecycles 2 — Questions and Answers
Question 1: Which lifecycle phase is characterized by the highest capital expenditure for a physical asset?
- Acquisition (Correct answer)
- Operation
- Disposal
- Planning
Correct answer: Acquisition
The acquisition phase typically involves the largest single capital outlay, covering purchase price, installation, and commissioning costs.
Question 2: A company's equipment has a book value of $0 but remains operationally useful. What is the most appropriate action?
- Continue operating it with updated maintenance records (Correct answer)
- Immediately dispose of it
- Write it up to fair market value on the balance sheet
- Transfer it to a subsidiary automatically
Correct answer: Continue operating it with updated maintenance records
Fully depreciated assets can remain in service as long as they are functional; the key is maintaining accurate records and continuing maintenance.
Question 3: What does the term 'ghost asset' refer to in asset management?
- An asset recorded in the books that no longer physically exists (Correct answer)
- An intangible asset with no market value
- An asset hidden from auditors
- A contingent liability classified as an asset
Correct answer: An asset recorded in the books that no longer physically exists
Ghost assets are items still on the asset register that have been lost, stolen, or scrapped without proper removal from the records.
Question 4: Which metric best measures whether an asset is being utilized effectively during its operating phase?
- Overall Equipment Effectiveness (OEE) (Correct answer)
- Net book value
- Accumulated depreciation
- Payback period
Correct answer: Overall Equipment Effectiveness (OEE)
OEE combines availability, performance, and quality rate to give a comprehensive view of how productively an asset is being used.
Question 5: In a capital lease, who records the leased asset on their balance sheet?
- The lessee (Correct answer)
- The lessor
- Both parties equally
- Neither party
Correct answer: The lessee
Under a capital (finance) lease, the lessee recognizes the asset and corresponding liability because substantially all risks and rewards transfer to the lessee.
Question 6: What is the primary purpose of a salvage value estimate in asset lifecycle planning?
- To determine the depreciable base of the asset (Correct answer)
- To calculate annual operating costs
- To set the acquisition budget
- To measure asset utilization
Correct answer: To determine the depreciable base of the asset
Salvage value is subtracted from acquisition cost to establish the depreciable base, directly affecting annual depreciation charges.
Question 7: Which lifecycle cost category typically accounts for the largest share of total cost of ownership for industrial equipment?
- Operations and maintenance (Correct answer)
- Acquisition
- Disposal
- Training
Correct answer: Operations and maintenance
Over a long service life, cumulative operations and maintenance costs almost always exceed the initial purchase price of industrial equipment.
Asset Management Managing Asset Lifecycles 2
Which lifecycle phase is characterized by the highest capital expenditure for a physical asset?