- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 7. Analysis of Long-Term Assets
- Subject 6. Depreciation Methods
CFA Practice Question
The depreciable base for straight-line depreciation is ______.
B. cost less salvage value
C. net book value less salvage value
A. cost less accumulated depreciation
B. cost less salvage value
C. net book value less salvage value
Correct Answer: B
A fixed asset's depreciable basis for straight-line depreciation is cost less salvage value.
User Contributed Comments 4
| User | Comment |
|---|---|
| ange | Not C. net book value = cost - accumulated depreciation. it changes from year to year so cannot be used as the depreciable base which is calculated when the asset is purchased. |
| cong | Depreciation base = purchase cost - estimated salvage value |
| dybacis | I don't understand why C is incorrect if: cost: 110,000 salvage value: 10,000 Useful life: 5 years yr 1: Net book value=110,000 (no depreciation yet) so (110,000 - 10,000)/5=20,000 yr 2: Net book value= 110,000 - 20,000=90,000 so (90,000 - 10,000)/4=20,000 yr 3: Net book value= 110,000 - 40,000=70,000 so (70,000 - 10,000)/3=20,000 etc.. |
| Thediceman | Net book value is the orginal acquisition cost less accumulated depreciation, depletion or amortization, not book value. |