Healthcare Fixed Assets & Depreciation Flashcards

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

Answer: Straight-line

The straight-line method divides depreciable cost evenly over the asset's useful life, producing a constant annual expense.

Under GAAP, which of the following costs is expensed rather than capitalized as part of a fixed asset's cost?

Answer: Staff training costs

Staff training costs are period costs expensed as incurred; they do not add to the asset's cost basis under GAAP.

A hospital purchases an MRI machine for $2,000,000 with a 10-year useful life and $200,000 salvage value. What is the annual straight-line depreciation?

Answer: $180,000

Annual depreciation = ($2,000,000 − $200,000) ÷ 10 = $180,000.

Which term describes the minimum dollar amount at which an expenditure is recorded as a fixed asset rather than an immediate expense?

Answer: Capitalization threshold

A capitalization threshold (or policy) sets the minimum cost above which an item is capitalized and depreciated rather than expensed.

The Modified Accelerated Cost Recovery System (MACRS) is primarily used for which purpose in healthcare accounting?

Answer: Federal income tax depreciation

MACRS is the depreciation system prescribed by the IRS for federal income tax purposes and is not used for GAAP or Medicare cost reports.

Which agency establishes useful life guidelines for healthcare equipment used in Medicare cost reports?

Answer: Centers for Medicare & Medicaid Services (CMS)

CMS publishes the Provider Reimbursement Manual guidelines, including useful lives for assets reported on Medicare cost reports.

When a hospital receives a government grant to purchase equipment, the preferred GAAP treatment is to:

Answer: Record the grant as deferred revenue and amortize it over the asset's life

Under ASC 958 and common practice, capital grants are recorded as deferred revenue and recognized over the related asset's useful life to match the benefit period.