Question

QUESTION 1

What effect does depreciation have on the calculation of the rate of return on total assets?

		affects both the numerator and denominator
		no effect
		increases the outcome
		decreases the outcome

QUESTION 2

Which one of the following statements is true?

		The activity method of computing depreciation could result in zero depreciation expense in some periods of time.
		If the activity method is in use, residual value should not be subtracted from cost to determine the depreciation base.
		The activity method produces a constant total cost of depreciation each period.
		The activity method should be used when the service life of the asset is affected mostly by the passage of time.

QUESTION 3

Many companies that use the declining-balance method of depreciation switch to the straight-line method at what point in the life of a depreciable asset?

		never, as one method must be applied consistently throughout the life of an asset
		in the last quarter of the life of the asset
		when the accelerated depreciation exceeds the straight-line depreciation
		midpoint in the life of the asset

QUESTION 4

The MACRS differs from straight-line depreciation computed for financial reporting. In this respect, which of the following isnot true?

		The MACRS uses longer asset lives.
		The MACRS ignores residual value.
		The MACRS decreases the income taxes payable in the early years of an asset's life.
		The MACRS accelerates cost recovery.

QUESTION 5

When low-cost depreciable assets with similar characteristics, service lives, and residual values are acquired, which depreciation method should be used?

		composite depreciation
		impairment depreciation
		group depreciation
		such assets should not be depreciated

Answer 1

1- Correct answer is Option A - affects both the numerator and denominator.

Depreciation is an expense, change in depreciation is affecting net income. Total asset include fixed asset, fixed asset will be at net of accumulated depreciation. Hence change in depreciation affect both the numerator and denominator.

Equation of Return on Total asset = Net income / Total assets

All other given options are wrong.

2- Option A - The activity method of computing depreciation could result in zero depreciation expense in some periods of time is the true statement.

All other given statements are false.

3- Option D- Midpoint in the life of asset is the correct answer.

All other given options are wrong.

4- Correct answer is Option A - The MARCS uses longer asset lives. this statement is not true.

All other given options are true.

5- Option C - Group depreciation is the correct answer