CFA Practice Question

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CFA Practice Question

The depreciable base for straight-line depreciation is ______.

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

Thediceman Net book value is the orginal acquisition cost less accumulated depreciation, depletion or amortization, not book value.
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