Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
1
The sum of the depreciable amount and the residual value of a fixed asset equals which of the following?
Answer:
Cost of the fixed asset
The total cost of a fixed asset is composed of the amount that will be depreciated over its useful life (depreciable amount) plus the estimated value remaining at the end of that life (residual or salvage value). Therefore, Cost = Depreciable Amount + Residual Value.
2
What is the result of adding the accumulated depreciation to the residual value of a fixed asset?
Answer:
Cost of the fixed assets
The historical cost of an asset is equal to the sum of its accumulated depreciation (the amount written off over time) and its residual or salvage value (the estimated value at the end of its useful life).
3
How is the depreciable amount of a fixed asset calculated?
Answer:
Cost – Scrap value
The depreciable amount of an asset is the portion of its cost that is expected to be consumed over its useful life. It is calculated by subtracting the estimated residual value (or scrap value) from the original cost of the asset. This amount is then allocated as depreciation expense over the asset's useful life using various accounting methods.
4
What is the term for the estimated amount an entity expects to obtain from the disposal of an asset after deducting the estimated costs of disposal at the end of its useful life?
Answer:
All of the above
In accounting, the terms residual value, salvage value, and scrap value are often used interchangeably to describe the estimated net realizable value of a fixed asset at the end of its useful life. These terms represent the amount an organization expects to receive when the asset is sold or otherwise disposed of, after accounting for any costs associated with the disposal process.
5
When calculating the total cost of a machine, how is the estimated disposal value of $6000 classified?
Answer:
relevant
The disposal value, also known as salvage value, is a relevant factor in determining the total cost of ownership and depreciation expense. It represents the estimated amount an entity expects to obtain from the disposal of an asset after deducting the estimated costs of disposal. Because it directly impacts the calculation of annual depreciation and the net book value of the asset, it is considered a relevant financial figure in accounting.
6
What is the term for the estimated net amount an entity expects to receive from the disposal of an asset at the end of its useful life?
Answer:
residual value
Residual value, also known as salvage value or scrap value, represents the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
7
What is the maximum cumulative depreciation that can be charged against an asset?
Answer:
Cost minus residual value
The total amount of depreciation charged over the useful life of an asset is limited to its depreciable base. The depreciable base is calculated as the original cost of the asset minus its estimated residual (or salvage) value. Once the book value reaches the residual value, no further depreciation is recorded, as the asset has reached its expected value at the end of its utility.