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Quizzes > Business & Finance > Finance & Economics

Take the Long-Lived Tangible Asset Depreciation Quiz

Think you know asset depreciation methods? Dive in and ace it!

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
paper art calculator coins ledger sheet blocks illustrating depreciation for Accounting 201 quiz on dark blue background

Are you ready to discover why a company should depreciate a long lived tangible asset to accurately reflect its value over time? Through our accounting asset depreciation quiz, you'll learn to choose the right asset depreciation methods - from straight-line to declining balance - and understand how each approach affects your balance sheet. In this free Accounting 201 challenge, you'll sharpen skills in depreciation expense calculation and tackle real-world scenarios in the tangible asset depreciation quiz. By the end, you'll confidently calculate depreciation, justify method choices, and avoid common pitfalls that trip up many learners. Jump into our interactive depreciation quiz and explore a focused MACRS quiz . Dive in now and master depreciation with confidence!

What is depreciation?
A systematic allocation of an asset's cost over its useful life
An amount saved for asset replacements
A cash outflow for purchasing assets
The market value decline of an asset
Depreciation is the process of systematically allocating the cost of a tangible asset over its estimated useful life rather than reflecting any cash outflow. It spreads the capitalized cost against revenues generated by using the asset. Depreciation does not measure market value decline. https://www.investopedia.com/terms/d/depreciation.asp
Which of the following is not a factor used in computing depreciation?
Useful life
Historical cost
Salvage value
Market value
Depreciation calculations rely on the asset's historical cost, estimated useful life, and salvage value, but not on its current market value. Market value fluctuations are irrelevant to systematic cost allocation. https://www.accountingtools.com/articles/depreciation
The book (carrying) value of an asset at any point in time equals:
Salvage value minus cost
Cost minus accumulated depreciation
Cost plus salvage value
Total depreciation recognized to date
Book value is defined as the asset's original cost less its accumulated depreciation. This represents the unallocated portion of the cost still to be expensed. https://www.accountingcoach.com/depreciation/explanation
Which depreciation method allocates an equal expense amount each period?
Sum-of-the-years'-digits
Double-declining balance
Units-of-production
Straight-line method
The straight-line method divides the depreciable base (cost minus salvage value) evenly over the asset's useful life. Other methods accelerate expense recognition or vary with usage. https://www.investopedia.com/terms/s/straightlinemethod.asp
What is the formula for straight-line depreciation expense?
(Cost minus salvage value) divided by useful life
Cost minus salvage value
Cost multiplied by useful life
Cost divided by useful life
Straight-line depreciation expense is calculated as (Cost - Salvage Value) ÷ Useful Life. This evenly allocates the depreciable base across each period of service. https://www.accountingverse.com/accounting-basics/depreciation/straight-line-depreciation.html
Salvage value represents:
The total depreciation to be recorded
An estimate of an asset's residual value at the end of its useful life
The purchase price of an asset
A guarantee of resale proceeds
Salvage value (residual value) is management's estimate of what the company can recover through sale or disposal once the asset is no longer useful. It reduces the depreciable base. https://www.accountingtools.com/articles/salvage-value
What is the depreciation rate per year for a five-year asset under the double-declining balance method?
40%
20%
33%
50%
Double-declining balance uses twice the straight-line rate. For a five-year life, straight-line is 20% per year, doubled to 40%. https://www.accountingcoach.com/blog/double-declining-balance-method
The half-year convention for depreciation means:
An asset is treated as in service for half the year in both the first and last year
Only half the asset cost is depreciated
Depreciation is only recorded every other year
The salvage value is halved
Under the half-year convention, assets placed in service or retired are assumed to be in use for half of the first and last year, simplifying record-keeping for large volumes of assets. https://www.irs.gov/publications/p946
In the units-of-production depreciation method, the depreciation rate per unit equals:
Cost divided by useful life
Salvage value divided by actual usage
(Cost minus salvage value) divided by total estimated units of production
Cost multiplied by hours used
Units-of-production depreciation calculates a per-unit rate as (Cost - Salvage Value) ÷ Total Estimated Units, then multiplies by units used each period. https://www.accountingtools.com/articles/units-of-production-depreciation
For an asset with a four-year life, the sum-of-years'-digits denominator equals:
4
10
6
15
Sum?of?years'?digits denominator is 1+2+3+4 = 10 for a four?year useful life. Each year's fraction uses the remaining life as numerator. https://www.accountingcoach.com/depreciation/explanation/4
Composite depreciation applies to:
Leasehold improvements only
A single homogeneous asset type
Intangible assets only
Pools of dissimilar assets depreciated at a single composite rate
The composite method groups dissimilar assets under one rate, simplifying recordkeeping. The group method is for similar assets. https://www.accountingtools.com/articles/composite-method-of-depreciation
How is a change in an asset's useful life estimate accounted for?
By recognizing a gain or loss immediately
Prospectively, adjusting future depreciation expense
Retrospectively, restating prior years
No adjustment is made
Changes in estimates, including useful life, are handled prospectively. Depreciation expense is recalculated based on the revised estimate for remaining periods. https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164141486
Which financial statement item is not directly affected by the recording of depreciation expense?
Net income
Book value of assets
Cash flows from operations
Total assets
Depreciation expense reduces net income and book value of assets but is a non-cash expense, so it does not reduce cash flows from operations. https://www.investopedia.com/terms/n/netincome.asp
Under double-declining balance, what is the depreciation expense in the second year for an asset costing $100,000 with a $10,000 salvage and 5-year life?
$20,000
$24,000
$18,000
$16,000
Year 1 expense = 2×(1/5)×100,000 = 40,000. Year 2 base = 100,000 - 40,000 = 60,000; 2×(1/5)×60,000 = 24,000. https://www.accountingcoach.com/blog/double-declining-balance-method
In the units-of-production method, depreciation expense varies based on:
Actual usage in the period
Estimated salvage value at end of life
Original useful life estimate
Historical cost only
Units-of-production ties expense to units used each period. If output fluctuates, expense fluctuates accordingly. https://www.accountingtools.com/articles/units-of-production-depreciation
For a 5-year asset costing $50,000 with $5,000 salvage, what is year 2 depreciation under the sum-of-years'-digits method?
$10,000
$9,000
$12,000
$15,000
Sum of digits=15. Year 2 fraction=4/15 of (50,000 - 5,000)=4/15×45,000=12,000. https://www.investopedia.com/terms/s/sum-of-the-years-digits-method.asp
How should a change in an asset's estimated salvage value be recorded?
As an immediate gain or loss
No adjustment needed
Retrospectively, restating all periods
Prospectively, by adjusting remaining depreciation expense
A change in salvage value is an estimate change, requiring only prospective adjustment to depreciation expense over remaining life. https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164141486
Under the group depreciation method, when an asset is retired at less than its book value, the difference is:
Recorded as a gain on disposal
Charged to depreciation expense
Directly charged to a liability account
Deferred until group is fully retired
Group depreciation pools similar assets; disposals' losses or gains are booked to Depreciation Expense rather than separately. https://www.accountingtools.com/articles/group-method-of-depreciation
When an asset is disposed of at exactly its book value, the entry results in:
Recognition of remaining depreciation
No gain or loss
A gain equal to salvage proceeds
A loss equal to salvage proceeds
If proceeds equal book value, the disposal entry removes the asset and accumulated depreciation but recognizes zero gain/loss. https://www.accountingcoach.com/disposal-of-asset/explanation
An impairment loss is recognized when an asset's carrying amount exceeds:
Replacement cost
Its original cost
The sum of its undiscounted future cash flows
Its estimated salvage value
GAAP's two-step impairment test first compares carrying amount to undiscounted cash flows; if carrying is higher, impairment is measured. https://www.accountingtools.com/articles/impairment-of-long-lived-assets
Under MACRS for five-year property using the half-year convention, the first-year depreciation rate is:
36%
20%
10%
14.4%
MACRS five-year class under half-year convention always uses 20% in year 1, per IRS tables. https://www.irs.gov/pub/irs-pdf/p946.pdf
The mid-quarter convention under MACRS applies when more than __________ of an asset class is placed in service in the last quarter.
30%
50%
40%
60%
Tax rules mandate the mid-quarter convention if over 40% of acquisitions occur in the final quarter of the tax year. https://www.irs.gov/pub/irs-pdf/p946.pdf
Which depreciation method produces higher expense in the early years of an asset's life?
Straight-line
Sum-of-the-years'-digits
Double-declining balance
Units-of-production
Double-declining balance accelerates depreciation most aggressively, yielding higher expenses initially compared to other methods. https://www.accountingcoach.com/blog/double-declining-balance-method
When should a company switch from double-declining balance to straight-line?
Only in the final year
Never; DDB always continues
When the straight-line amount for remaining life exceeds the DDB amount
At the midpoint of useful life
Companies switch when the straight-line calculation on remaining book value over remaining life produces a higher expense, ensuring full depreciation by salvage. https://www.investopedia.com/terms/d/double-decliningbalance.asp
Partial period depreciation typically is calculated based on:
Number of quarters
Number of days exclusively
Full years only
Number of months in service during the period
Most companies prorate depreciation by months for assets placed into or disposed of during the year. https://www.accountingtools.com/articles/prorating-monthly-depreciation
A change in depreciation method is recorded as:
An error correction with prior-period restatement
A change in accounting principle, applied retrospectively
No adjustment under any circumstances
A change in estimate, applied prospectively
Switching methods is treated as a change in accounting principle effected by a change in estimate, so it's applied retrospectively with appropriate disclosures. https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164141486
Which accounting framework requires component depreciation?
Both IFRS and U.S. GAAP
Neither
U.S. GAAP
IFRS
IFRS (IAS 16) mandates that material parts of an asset with different useful lives be depreciated separately. U.S. GAAP does not require componentization. https://www.iasplus.com/en/standards/ias/ias16
Which model for property, plant, and equipment is permitted under IFRS but prohibited under U.S. GAAP?
Revaluation model
Cost model
Fair value option
Recoverable amount model
IFRS allows a revaluation model (subsequent measurement at fair value), whereas U.S. GAAP only permits the cost model. https://www.ifrs.org/content/dam/ifrs/project/pp-e/phase-b/iasb-ppe-phase-b-material/iasb-paper-6a-ppe-revaluation.pdf
Under IFRS, the recoverable amount for held-for-use assets is:
Original cost less accumulated depreciation
The higher of fair value less cost to sell and value in use
The lower of fair value and cost
The lower of recoverable amount and carrying amount
IAS 36 defines recoverable amount as the greater of an asset's fair value minus costs to sell and its value in use (discounted cash flows). https://www.iasplus.com/en/standards/ias/ias36
Under U.S. GAAP, the impairment test for held-for-use assets is a two-step process. The first step compares carrying cost with:
Replacement cost
Fair value
Net realizable value
Undiscounted future cash flows
ASC 360 requires first comparing the book amount to the sum of undiscounted cash flows; if unrecoverable, the second step measures impairment as carrying minus fair value. https://asc.fasb.org/
When an asset retirement obligation (ARO) is recorded, the company must:
Record a liability at fair value and capitalize it as part of asset cost
Defer recognition until settlement
Measure the liability at nominal salvage value
Expense the full obligation immediately
ASC 410 - 20 requires recognizing the ARO liability at fair value and adding it to the asset's basis, which is then depreciated over its useful life. https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164159210
Under MACRS, residential rental property uses which convention?
Daily pro rata convention
Mid-month convention
Half-year convention
Mid-quarter convention
Residential rental property under MACRS uses the mid-month convention, assuming assets placed in service in the middle of the month. https://www.irs.gov/pub/irs-pdf/p946.pdf
The average composite life of a pool of assets equals:
Average of useful lives weighted by salvage values
Total depreciable basis of the pool divided by the annual composite depreciation expense
Total cost divided by total number of assets
Sum of individual life estimates divided by number of assets
Composite life = Aggregate depreciable basis ÷ Aggregate annual depreciation; it represents the weighted-average life of the pool. https://www.accountingtools.com/articles/composite-method-of-depreciation
Under the composite depreciation method, when an asset is removed, what is recognized?
A gain if proceeds exceed book value
A loss if proceeds are less than book value
No gain or loss on disposal
Salvage proceeds deferred
Composite depreciation treats disposals by removing cost and accumulated depreciation with no separate gain or loss, reflecting one pool rate. https://www.accountingtools.com/articles/composite-method-of-depreciation
Which cost allocation method is used for natural resources rather than depreciation?
Depletion
Sum-of-the-years'-digits
Double-declining balance
Units-of-production depreciation
Natural resource assets are allocated using depletion, commonly on a units-of-production basis, distinct from depreciation for fixed assets. https://www.investopedia.com/terms/d/depletion.asp
Which event triggers an impairment review under U.S. GAAP?
Stable usage levels
Significant decline in market value of the asset
Full recovery of salvage value
Routine maintenance
A significant, unexpected decline in market value is a triggering event requiring impairment testing under ASC 360. https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164117313
Under IFRS revaluation model, an upward revaluation surplus is:
Recognized in profit or loss
Credited to equity under other comprehensive income
Ignored until disposal
Debited against retained earnings
IAS 16 states that increases in asset value are recognized in OCI and accumulated in equity under the revaluation surplus account. https://www.iasplus.com/en/standards/ias/ias16
Borrowing costs directly attributable to the acquisition or construction of a qualifying asset must be:
Capitalized as part of the asset's cost
Deferred and amortized over 10 years
Expensed in the period incurred
Recorded as a liability only
IAS 23 and ASC 835 require capitalization of avoidable interest on qualifying assets during the construction period. https://www.ifrs.org/issued-standards/list-of-standards/ias-23-borrowing-costs/
Under IFRS, reversal of impairment losses on property, plant, and equipment is:
Prohibited under all circumstances
Allowed only for intangible assets
Allowed only under U.S. GAAP
Allowed if recoverable amount increases
IAS 36 permits reversing impairment losses when the asset's recoverable amount subsequently exceeds its carrying amount. U.S. GAAP prohibits reversals for held-for-use assets. https://www.iasplus.com/en/standards/ias/ias36
Under U.S. GAAP, reversal of an impairment loss for a held-for-use asset is:
Prohibited
Required if fair value recovers
Required on disposal
Allowed only for intangible assets
ASC 360 forbids reversing impairment losses for long-lived assets held and used, even if fair value recovers. https://asc.fasb.org/
A change in depreciation method is classified as:
Change in accounting estimate effected by a change in accounting principle, applied prospectively
Error correction
Change in financial reporting entity
Change in accounting principle applied retrospectively
GAAP treats method changes as a change in estimate via a change in principle, requiring prospective application and disclosure. https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164141486
Which interest cost is capitalized when constructing a qualifying asset?
Total interest expense
Average borrowing rate
Avoidable interest cost
Market interest rate
Capitalized interest is limited to the amount of interest expense that could have been avoided if expenditures for the asset had not been made (avoidable interest). https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176164159210
After revaluing an asset under IFRS, depreciation expense is based on:
Original cost less salvage over original life
Fair value only
Historical cost only
Revalued carrying amount less revised residual value over remaining useful life
Under the revaluation model, subsequent depreciation is charged on the revalued amount less any residual value over the asset's remaining life. https://www.iasplus.com/en/standards/ias/ias16
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Study Outcomes

  1. Understand depreciation rationale -

    Understand why a company should depreciate a long lived tangible asset to accurately report its book value and reflect the gradual consumption of asset benefits.

  2. Compare asset depreciation methods -

    Compare asset depreciation methods such as straight-line, declining-balance, and units-of-production to select the most appropriate approach.

  3. Calculate depreciation expense -

    Perform depreciation expense calculation using various methods and verify your computations with practical examples.

  4. Apply methods in quiz scenarios -

    Apply your knowledge in this tangible asset depreciation quiz and accounting asset depreciation quiz to reinforce key principles.

  5. Analyze financial statement effects -

    Analyze how depreciation impacts the balance sheet and income statement, influencing net income and asset valuations.

  6. Evaluate method selection -

    Evaluate factors that guide method selection for long-lived tangible assets to achieve accurate matching of cost and revenue.

Cheat Sheet

  1. Matching Principle & Purpose -

    A company should depreciate a long lived tangible asset to allocate its cost systematically over time in line with the matching principle, ensuring book values reflect current asset consumption (FASB). Think of depreciation like slicing a pizza - each slice (period) gets its fair share of the cost. This practice builds reliable financial statements that stakeholders trust.

  2. Straight-Line Method -

    Under GAAP straight-line is the most common asset depreciation method; expense = (Cost - Salvage) ÷ Useful Life. For example, a $50,000 piece of equipment with $5,000 salvage over 5 years yields ($50,000 - $5,000)/5 = $9,000 per year (University of Illinois). Perfect for predictable wear-and-tear!

  3. Declining Balance Methods -

    Accelerated asset depreciation methods like double-declining-balance expense more in early years and less later, using 2×(1/useful life)×book value. For instance, a 4-year vehicle with a $100,000 book value uses a 50% DDB rate to record $50,000 in year one, capturing rapid obsolescence (Harvard Business School). Remember the "double dip" mnemonic to front-load expense!

  4. Units-of-Production Approach -

    This method ties depreciation expense calculation to actual usage: (Cost - Salvage) ÷ Total Estimated Production × Units Produced. Imagine a delivery truck; a 200,000-mile lifetime at $30,000 cost means ($30,000 - $5,000)/200,000 = $0.125 per mile, so 20,000 miles driven in a year yields $2,500 expense (Khan Academy). Ideal for assets where wear aligns directly with activity.

  5. Impairment & Review Process -

    Regular impairment reviews ensure an asset's recoverable amount is not overstated on the balance sheet (IAS 36). If market shifts or damage occur, record an impairment loss, similar to a "reality check" in your accounting asset depreciation quiz. Applying these checks to tangible asset depreciation quiz scenarios bolsters accuracy and financial transparency.

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