17 Lecture

1. What are fixed assets? a. Short-term tangible assets b. Long-term tangible assets c. Intangible assets d. Both a and b

Answer: b. Long-term tangible assets

2. Which of the following is an example of a fixed asset? a. Cash b. Inventory c. Building d. Accounts receivable

Answer: c. Building

3. What is depreciation? a. The process of allocating the cost of a fixed asset over its useful life b. The process of increasing the cost of a fixed asset over its useful life c. The process of revaluing a fixed asset based on market prices d. The process of adjusting the cost of a fixed asset based on inflation

Answer: a. The process of allocating the cost of a fixed asset over its useful life

4. Which of the following is not a method of depreciation? a. Straight-line b. Double-declining balance c. Units of production d. Last-in, first-out (LIFO)

Answer: d. Last-in, first-out (LIFO)

5. Which method of depreciation results in a higher depreciation expense in the early years of an asset's life? a. Straight-line b. Double-declining balance c. Units of production d. All of the above

Answer: b. Double-declining balance

6. Which method of depreciation results in a lower depreciation expense in the early years of an asset's life? a. Straight-line b. Double-declining balance c. Units of production d. None of the above

Answer: a. Straight-line

7. What is the salvage value of a fixed asset? a. The amount of money the business paid for the asset b. The estimated value of the asset at the end of its useful life c. The amount of depreciation expense recognized in the first year d. The estimated value of the asset at the beginning of its useful life

Answer: b. The estimated value of the asset at the end of its useful life

8. What is the formula for calculating straight-line depreciation? a. (Cost - Salvage Value) / Useful Life b. Cost x Useful Life c. Salvage Value x Useful Life d. Cost - (Salvage Value / Useful Life)

Answer: a. (Cost - Salvage Value) / Useful Life

9. What is the purpose of tracking fixed assets? a. To determine the value of a business b. To calculate taxes owed c. To comply with accounting standards d. All of the above

Answer: d. All of the above

10. What is the impact of depreciation on a business's financial statements? a. It increases assets and decreases liabilities b. It decreases assets and increases liabilities c. It decreases assets and decreases equity d. It has no impact on assets, liabilities, or equity

Answer: c. It decreases assets and decreases equity.

1. What is a fixed asset, and how is it different from a current asset? Answer: A fixed asset is a long-term tangible asset that a business owns and uses in its operations, such as property, plant, and equipment. Current assets are short-term assets that are expected to be converted into cash within a year.

2. What is depreciation, and why is it necessary? Answer: Depreciation is the process of allocating the cost of a fixed asset over its useful life. It is necessary to accurately track the value of fixed assets and to comply with accounting standards.

3. What are some of the methods of depreciation, and how do they differ? Answer: Methods of depreciation include straight-line, declining balance, and units of production. They differ in the way they allocate the cost of an asset over its useful life.

4. What is salvage value, and how does it impact depreciation? Answer: Salvage value is the estimated value of a fixed asset at the end of its useful life. It impacts depreciation by reducing the total amount of cost that can be allocated to depreciation.

5. How is depreciation calculated using the straight-line method? Answer: Depreciation using the straight-line method is calculated by subtracting the estimated salvage value of an asset from its cost and then dividing the result by its useful life.

6. What is the impact of depreciation on a business's financial statements? Answer: Depreciation reduces the value of fixed assets on a business's balance sheet and also reduces equity on its income statement.

7. How do changes in depreciation impact a business's financial statements? Answer: Changes in depreciation impact a business's financial statements by altering the amount of depreciation expense recognized on the income statement, which in turn affects equity and net income.

8. Why is it important to accurately track fixed assets? Answer: Accurately tracking fixed assets is important for financial decision-making, tax reporting, and compliance with accounting standards.

9. How does depreciation impact a business's tax liability? Answer: Depreciation reduces a business's taxable income, which can lower its tax liability.

10. What are some strategies that businesses can use to maximize the tax benefits of depreciation? Answer: Businesses can maximize the tax benefits of depreciation by choosing the most advantageous method of depreciation and by making strategic decisions about when to purchase and dispose of fixed assets.

Fixed assets are long-term assets that businesses own and use in their operations. They include property, plant, and equipment, such as buildings, machinery, and vehicles. Depreciation is the process of allocating the cost of these fixed assets over their useful lives, reflecting their gradual loss of value over time. This is necessary to accurately track the value of fixed assets and comply with accounting standards. There are several methods of depreciation, including straight-line, declining balance, and units of production. The straight-line method is the simplest, and involves dividing the cost of an asset, less its estimated salvage value, by its useful life. The declining balance method applies a higher rate of depreciation in the earlier years of an asset's life, while the units of production method bases depreciation on the amount of output produced by the asset. The estimated salvage value of an asset is the amount that it is expected to be worth at the end of its useful life. This is an important consideration when calculating depreciation, as it reduces the total amount of cost that can be allocated to depreciation. Depreciation has a significant impact on a business's financial statements. It reduces the value of fixed assets on the balance sheet, and also reduces equity on the income statement. Changes in depreciation can impact a business's financial statements by altering the amount of depreciation expense recognized on the income statement, which in turn affects equity and net income. Accurately tracking fixed assets is important for financial decision-making, tax reporting, and compliance with accounting standards. Depreciation also impacts a business's tax liability, as it reduces taxable income and can lower tax liability. Businesses can maximize the tax benefits of depreciation by choosing the most advantageous method of depreciation and making strategic decisions about when to purchase and dispose of fixed assets. Overall, understanding fixed assets and depreciation is critical for any business to effectively manage its financial resources.