Intermediate Accounting Chapter 11 Essay

16061 Words Feb 5th, 2013 65 Pages
Chapter 11 Property, Plant, and Equipment and Intangible Assets: Utilization and Impairment

Questions for Review of Key Topics

Question 11-1

The terms depreciation, depletion, and amortization all refer to the process of allocating the cost of property, plant, and equipment and finite-life intangible assets to periods of use. The only difference between the terms is that they refer to different types of these long-lived assets; depreciation for plant and equipment, depletion for natural resources, and amortization for intangibles.

Question 11-2

The term depreciation often is confused with a decline in value or worth of an asset. Depreciation is not measured as decline in value from one
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Question 11-5

The total amount of depreciation to be recorded during an asset’s service life is called its depreciable base. This amount is the difference between the initial value of the asset at its acquisition (its cost) and its residual value. Residual or salvage value is the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.
Answers to Questions (continued)

Question 11-6

Activity-based allocation methods estimate service life in terms of some measure of productivity. Periodic depreciation or depletion is then determined based on the actual productivity generated by the asset during the period. Time-based allocation methods estimate service life in years. Periodic depreciation or amortization is then determined based on the passage of time.

Question 11-7

The straight-line depreciation method allocates an equal amount of depreciable base to each year of an asset’s service life. Accelerated depreciation methods allocate higher portions of depreciable base to the early years of the asset’s life and lower amounts of depreciable base to later years. Total depreciation is the same by either approach.

Question 11-8

Theoretically, the use of activity-based depreciation methods would provide a better matching of revenues and expenses. Clearly, the productivity of a plant asset is more

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