Construction Equipment and Asset Management Flashcards

Which depreciation method allocates an equal amount of depreciation expense each year over the asset's useful life?

Answer: Straight-line depreciation

Straight-line depreciation divides the cost minus salvage value evenly across the asset's useful life.

Under GAAP, heavy construction equipment is classified on the balance sheet as:

Answer: Property, plant and equipment

Heavy equipment used in operations is reported as property, plant and equipment (PP&E) on the balance sheet.

A construction company purchases equipment for $150,000 with a salvage value of $15,000 and a 5-year useful life. What is the annual straight-line depreciation?

Answer: $27,000

Annual depreciation = ($150,000 - $15,000) / 5 = $135,000 / 5 = $27,000.

Which equipment cost classification represents routine maintenance to keep equipment in working order?

Answer: Revenue expenditure

Routine maintenance costs that do not extend useful life or improve performance are revenue expenditures expensed immediately.

The double declining balance method applies which rate to book value each year?

Answer: 2 times the straight-line rate

Double declining balance uses twice the straight-line depreciation rate applied to the remaining book value each period.

When a construction company sells a fully depreciated piece of equipment for $8,000, this amount is recognized as:

Answer: Gain on disposal of asset

Proceeds from selling an asset with zero book value are recorded entirely as a gain on disposal.