CFA Practice Question

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CFA Practice Question

Depreciation accounting is a system of accounting that aims to ______

A. record the carrying value of an asset.
B. periodically allocate the cost of a tangible long-lived asset over its estimated life.
C. distribute the cost or other basic value of tangible capital assets, less salvage, over the estimated useful life of the unit in a systematic and rational manner.
Correct Answer: C

User Contributed Comments 10

User Comment
past1sttime what if you use double declining balance to depreciate the asset, salvage value does not come in to play.
golflover then the salvage value would be 0.
bundy Less salvage value is key there
moneyguy Yes, B does not state salvage value, so it's false.
bidisha when in doubt pick the longest answer
vatsal92 @Bidisha: I kinda do the same. :p
shash0678 Why not A - Isnt the carrrying value same as depreciated value??
Inaganti6 @bidisha HAHAHHAAHHAhahahah
Kiniry @past1sttime: With double declining balance, salvage value DOES come into play. You stop depreciating at salvage value, during the last year of the useful life.
example: If carrying balance is $100,000, and double declining would lead to depreciation of $40,000, but salvage value is $80,000, you only record a depreciation expense of $20,000, not the full $40,000
EEEEvia whichever is longe
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