CM 2113 (Economics, Finance & Social Science) Complete
Guide to Depreciation Methods, Ownership & Operating Costs
and Hearing Conservation – Construction Finance &
Equipment Management Practice Questions with Accurate
Solutions A+ Graded
Depreciation is deducted from revenue and _______ the taxable income of a
business over time.
reduces
Depreciation is a cash flow on an _____ ___ _____.
after tax basis
a property is deductible if it meets what three criteria
1. The property is used for business purposes in the production of income.
2. The property has a useful life that can be determined, and the useful life is longer
than one year.
3. The property decays, gets used up, wears out, becomes obsolete or loses value
from natural causes.
Simplest and best known depreciation method:
○ Annual depreciation amount = R(PPSV)
■ PP= dollar amount being depreciated (purchase price + any other costs to
make the asset "ready for use")
■ SV= salvage value
■ R= 1/N (R is the annual depreciation rate, N is depreciation period)
Straight -Line Depreciation
This method results in larger than straightline depreciation charges during an
asset's early years and smaller charges as the asset nears the end of its
depreciable life.
SumoftheYears (SOY) depreciation
,■ Constant depreciation rate (either 150% or 200% of SL rate)
■ Double declining balance (DDB)200% of SL rate
○ Dm=2/N*(BVm1)
Declining Balance Depreciation
is the system presently used by the US government.
■ The first and last years of the recovery period are each assumed to be half
year.
■ Depreciation percentages continue for one year beyond the property class
life (see. Table 113)
MACRS
advantages of marcs
○ Property class lives are less than the
actual useful lives
○ Salvage values are assumed to be Zero for all assets
○ Tables of annual percentages simplify computations
"An estimate of how long an item of property can be expected to be usable in
trade or business or to produce income."
Useful Life
A number of years that establishes the property class and recovery period for
most types of property under the General Depreciation System (GDS) and
Alternative Depreciation System (ADS).
Class Life
The number of years over which the basis of an item of property is recovered.
Recovery Period
The ____ ______ drops fastest and furthest with MACRS, thus the present worth
(NPW) is the largest for the MACRS depreciation deductions.
book value
, The difference between accounting and engineering economy is that
accounting evaluates and predicts future events, and engineering economy
evaluates past performance.
False
Payments that differ in amount may be equal if made at different points in time.
True
(P/F, i, N) stands for finding a future value given a present value at interest rate i
for N years.
False
Uniform Series of Payments is a series of payments or receipts that occurs at
the beginning of each period for N periods.
False
Compared to Straight Line (SL) depreciation method, Sum of the Year (SOY)
depreciation method results in larger depreciation charges during an asset's
early years and smaller charges as the asset nears the end of its depreciable
life.
True
In the modified accelerated cost recovery system (MACRS), salvage values are
assumed to be 10% of the total purchase price.
False
When calculating equipment hourly operation cost, tires cost should be
estimated separately as part of operation cost.
False, true?
Ownership costs generally increases with equipment ages because of the
repair and maintenance cost.
False
Guide to Depreciation Methods, Ownership & Operating Costs
and Hearing Conservation – Construction Finance &
Equipment Management Practice Questions with Accurate
Solutions A+ Graded
Depreciation is deducted from revenue and _______ the taxable income of a
business over time.
reduces
Depreciation is a cash flow on an _____ ___ _____.
after tax basis
a property is deductible if it meets what three criteria
1. The property is used for business purposes in the production of income.
2. The property has a useful life that can be determined, and the useful life is longer
than one year.
3. The property decays, gets used up, wears out, becomes obsolete or loses value
from natural causes.
Simplest and best known depreciation method:
○ Annual depreciation amount = R(PPSV)
■ PP= dollar amount being depreciated (purchase price + any other costs to
make the asset "ready for use")
■ SV= salvage value
■ R= 1/N (R is the annual depreciation rate, N is depreciation period)
Straight -Line Depreciation
This method results in larger than straightline depreciation charges during an
asset's early years and smaller charges as the asset nears the end of its
depreciable life.
SumoftheYears (SOY) depreciation
,■ Constant depreciation rate (either 150% or 200% of SL rate)
■ Double declining balance (DDB)200% of SL rate
○ Dm=2/N*(BVm1)
Declining Balance Depreciation
is the system presently used by the US government.
■ The first and last years of the recovery period are each assumed to be half
year.
■ Depreciation percentages continue for one year beyond the property class
life (see. Table 113)
MACRS
advantages of marcs
○ Property class lives are less than the
actual useful lives
○ Salvage values are assumed to be Zero for all assets
○ Tables of annual percentages simplify computations
"An estimate of how long an item of property can be expected to be usable in
trade or business or to produce income."
Useful Life
A number of years that establishes the property class and recovery period for
most types of property under the General Depreciation System (GDS) and
Alternative Depreciation System (ADS).
Class Life
The number of years over which the basis of an item of property is recovered.
Recovery Period
The ____ ______ drops fastest and furthest with MACRS, thus the present worth
(NPW) is the largest for the MACRS depreciation deductions.
book value
, The difference between accounting and engineering economy is that
accounting evaluates and predicts future events, and engineering economy
evaluates past performance.
False
Payments that differ in amount may be equal if made at different points in time.
True
(P/F, i, N) stands for finding a future value given a present value at interest rate i
for N years.
False
Uniform Series of Payments is a series of payments or receipts that occurs at
the beginning of each period for N periods.
False
Compared to Straight Line (SL) depreciation method, Sum of the Year (SOY)
depreciation method results in larger depreciation charges during an asset's
early years and smaller charges as the asset nears the end of its depreciable
life.
True
In the modified accelerated cost recovery system (MACRS), salvage values are
assumed to be 10% of the total purchase price.
False
When calculating equipment hourly operation cost, tires cost should be
estimated separately as part of operation cost.
False, true?
Ownership costs generally increases with equipment ages because of the
repair and maintenance cost.
False
