MGAC01H3 Chapter Notes - Chapter 11: Market Capitalization

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lavenderdonkey6

18 Oct 2011

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There has been a significant reduction in the asset"s market value. There is evidence of obsolescence or physical damage of an asset. A significant change in the technological, market, economic, or legal environment has affected or may adversely affect the entity. Market rates of return have increased, with a negative effect on the asset"s value and recoverable amount. Significant changes with adverse effects have taken place or are expected to take place in how the asset is used. Internal reports about the asset indicate its performance is or will be worse than expected. The book value of the entity"s net assets is more than the company"s market capitalization. Summary of learning objectives: explain the concept of depreciation. Depreciation is the process of allocating the cost of property, plant, and equipment assets in a systematic and rational manner to the periods that are expected to benefit from their use.

Related Questions

Each of the statements appearing below is descriptive of one or more of the following depreciation methods. Create a list numbered 1 â 5 and place the Roman Numeral(s) belonging to the method(s) to which the statement best applies. A method could be used once, more than once or not at all.

I. Component

II. Declining-balance

III. Straight-line

IV. Sum-of-the-years'-digits

V. Units-of-production

____111_ 1. The depreciation charged by this method decreases by the same amount each year.

_____ 2. This method is used if each part of a plant asset is significant to the asset's total cost.

_____ 3. The method allocates larger shares of the cost of a plant asset to expense during the years in which the greatest use is made of the asset.

_____ 4. The method always allocates larger shares of the cost of a plant asset to expense during the earlier years of its life.

_____ 5. Once the depreciable base, residual value, and life of a plant asset are determined, the annual charges to operations under this method will be the same.

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25.Which of the following items does not affect the calculation of depreciation expense?

A.Economic benefits generated by the asset

B.Useful life of the asset

C.Residual value of the asset

D.Capitalized cost of the asset

26.Which of the following statements is correct when the straight-line method is used to compute depreciation?

A.The carrying value of an asset is a constant amount during the asset's useful life

B.Accumulated depreciation is a constant amount during the asset's estimated useful life

C.Depreciation Expense is a constant amount each year

D.The book value of an asset is an increasing amount during the asset's useful life

27.One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method:

A.reduces book value below residual value.

B.does not consider the useful life of the asset in the calculation of depreciation.

C.cannot be used for tax purposes.

D.uses book value instead of depreciable cost in the calculation of depreciation.

28.Why don't all companies use the same depreciation method?

A.US income tax regulations require that a company use the same depreciation method for both financial reporting and income taxes.

B.Different depreciation methods might better reflect the pattern in which assets' economic benefits are used.

C.All companies do use the same depreciation method.

D.Only large companies are allowed to use some of the more complicated depreciation methods.

Depreciation Concepts

Listed below are concepts and terminology related todepreciation.

Required:

Match each concept with the related terminology.

	Concepts	Terminology
1.	The period of time over which thecompany anticipates deriving benefit from the use of the asset	SelectDepreciationAccumulateddepreciationBook valueUseful lifeResidual valueItem 1
2.	The cost of the asset minus itsaccumulated depreciation	SelectDepreciationAccumulateddepreciationBook valueUseful lifeResidual valueItem 2
3.	The total amount of depreciationexpense that has been recorded for an asset since the asset wasacquired	SelectDepreciationAccumulateddepreciationBook valueUseful lifeResidual valueItem 3
4.	The amount of cash or trade-inconsideration that the company expects to receive when an asset isretired from service	SelectDepreciationAccumulateddepreciationBook valueUseful lifeResidual valueItem 4
5.	A process of cost allocation, notan attempt to measure the fair value of an asset	SelectDepreciationAccumulateddepreciationBook valueUseful lifeResidual valueItem 5

MGAC01H3 Chapter Notes - Chapter 11: Market Capitalization

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