Healthcare Fixed Assets & Depreciation Flashcards

The double-declining balance (DDB) method calculates annual depreciation by applying which rate to the asset's net book value?

Answer: Twice the straight-line rate

DDB uses twice the straight-line rate applied to the remaining net book value each year, accelerating depreciation in early years.

A hospital disposes of medical equipment with a net book value of $50,000 for $30,000 cash. What is the financial statement impact?

Answer: Loss of $20,000

The proceeds ($30,000) are less than the net book value ($50,000), resulting in a $20,000 loss on disposal.

Under ASC 360, an impairment loss on a long-lived healthcare asset is recognized when:

Answer: The carrying amount exceeds undiscounted future cash flows

ASC 360 triggers an impairment test when events occur indicating possible impairment; a loss is recognized when carrying amount exceeds undiscounted future cash flows.

Under ASC 842, which type of lease requires the lessee to recognize a right-of-use asset and a lease liability on the balance sheet with interest and amortization recognized separately?

Answer: Finance lease

A finance lease under ASC 842 is treated similarly to a capital lease — the lessee capitalizes the asset and liability and records interest expense plus amortization separately.

A hospital acquires a building for $5,000,000. The land is independently appraised at $500,000. What amount is subject to depreciation?

Answer: $4,500,000

Land is not depreciated; only the building portion ($5,000,000 − $500,000 = $4,500,000) is depreciable.

Component accounting for healthcare facilities requires organizations to:

Answer: Depreciate significant components with different useful lives separately

Component accounting requires that major parts of an asset with significantly different useful lives (e.g., roof vs. structure) be depreciated individually.

Which depreciation method typically results in the highest depreciation expense in the first year of an asset's life?

Answer: Double-declining balance

Double-declining balance applies the highest rate in year one because the full cost (before any depreciation) is multiplied by twice the straight-line rate.