# Chapter 11

The flashcards below were created by user kchiccarine on FreezingBlue Flashcards.

1. What is an asset's depreciable base?
• Original cost
• less: salvage value
• Depreciation base
2. What are the 4 main depreciation methods?
• Activity method (units of use or production)
• Straight-line
• Sum-of-year's digits
• Declining balance method

SOY digits and DD balance are accelerated methods but OVERALL depreciation is always the same regardless of the method used
3. Activity Method
• Cost-salvage
• Estimated total service hours

=Depreciation/hour

Multiply by hours used
4. Straight-line Depreciation
Depreciation as a function of time

• Cost less salvage
• Estimated service life

=Depreciation per year
5. Sum of years digits
Depreciation fraction (Depreciation base)

= Depreciation expense
6. Formula for determining the denominator in sum of years digits
• n (n+1)
• 2

=denominator
7. Double-declining balance method
Does not use depreciable base--use book value

Book value (rate [double that of straight-line])=

depreciation expense
8. Impairment
When a company writes off the carrying amount of an asset that is not recoverable
9. Recoverability test
• 1- Determine future cash flows of the asset
• 2- Compare it to the carrying amt of the asset
• 3-If future cash flows < carrying amt = Impairment

• If future cash flows > carrying amt =
• No Impairment
10. How is an asset adjusted due to an impairment?
Carrying amount - FMV = Impairment loss
11. What is the journal entry to record loss on impairment?
• Loss on impairment xxx
• Accumulated Depreciation xxx
12. Depletion
Similar to units of activity depreciation

• Total cost - salvage value
• Total estimated units available

= Depletion cost per unit
13. How is impairment different when the asset will be disposed?
Each period the assets are reported at LCM or net realizable value.

Impairment loss= carrying amt less FMV + cost of disposal

No depreciation taken

restoration of impairment loss permitted
 Author: kchiccarine ID: 53266 Card Set: Chapter 11 Updated: 2010-12-08 15:46:27 Tags: Depreciation Impairments Depletion Folders: Description: Depreciation, Impairments and Depletion Show Answers: