When Depreciation Is Computed for Partial Periods Under a Diminishing-Charge

question 7

Multiple Choice

When depreciation is computed for partial periods under a diminishing-charge depreciation method, it is necessary to

• A)charge a full year's depreciation to the year of acquisition.
• B)determine depreciation expense for the full year and then prorate the expense between the two periods involved.
• C)use the straight-line method for the year in which the asset is sold or otherwise disposed of.
• D)use a residual value equal to the first year's partial depreciation charge.

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Definitions:

Cash Payback Period

The duration it takes for the earnings from an investment to cover the initial amount invested.

Annual Net Cash Flows

The total amount of money, including inflows minus outflows, that a business generates over one year.

Expected Total Cash Flows

The projection of all the cash that is anticipated to be received or paid out over a certain period of time in the future.

Cash Payback Period

The time period required for the returns from an investment to repay the initial capital outlay.