CCIFP Construction Equipment and Asset Management 1 — Questions and Answers
Question 1: Which depreciation method allocates an equal amount of depreciation expense each year over the asset's useful life?
- Straight-line depreciation (Correct answer)
- Double declining balance
- Units of production
- Sum-of-the-years'-digits
Correct answer: Straight-line depreciation
Straight-line depreciation divides the cost minus salvage value evenly across the asset's useful life.
Question 2: Under GAAP, heavy construction equipment is classified on the balance sheet as:
- Current asset
- Intangible asset
- Property, plant and equipment (Correct answer)
- Prepaid expense
Correct answer: Property, plant and equipment
Heavy equipment used in operations is reported as property, plant and equipment (PP&E) on the balance sheet.
Question 3: 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?
- $27,000 (Correct answer)
- $30,000
- $25,000
- $22,500
Correct answer: $27,000
Annual depreciation = ($150,000 - $15,000) / 5 = $135,000 / 5 = $27,000.
Question 4: Which equipment cost classification represents routine maintenance to keep equipment in working order?
- Capital expenditure
- Revenue expenditure (Correct answer)
- Betterment
- Improvement
Correct answer: Revenue expenditure
Routine maintenance costs that do not extend useful life or improve performance are revenue expenditures expensed immediately.
Question 5: The double declining balance method applies which rate to book value each year?
- 1.5 times the straight-line rate
- 2 times the straight-line rate (Correct answer)
- 3 times the straight-line rate
- The straight-line rate
Correct 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.
Question 6: When a construction company sells a fully depreciated piece of equipment for $8,000, this amount is recognized as:
- Revenue from operations
- Gain on disposal of asset (Correct answer)
- Reduction of depreciation expense
- Capital contribution
Correct answer: Gain on disposal of asset
Proceeds from selling an asset with zero book value are recorded entirely as a gain on disposal.
CCIFP Construction Equipment and Asset Management 1
Which depreciation method allocates an equal amount of depreciation expense each year over the asset's useful life?