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. Distinguish among depreciation, depletion, and amortization. 2. Identify the factors that are relevant in determining the annual depreciation charge, and explain whether these factors are determined objectively or whether they are based on judgment. 3. Some believe that accounting depreciation measures the decline in the value of property, plant, and equipment. Do you agree? Explain. 4. Explain how estimation of service lives can result in unrealistically high valuations of property, plant, and equipment. 5. The plant manager of a manufacturing firm suggested in a conference of the compaan executives that accountants should speed up depreciation on the machinery in the finishing department because improvements were rapidly making those machines obsolete, and a depreciation fund big enough to cover their replacement is needed. Discuss the accounting concept of depreciation and the effect on a business concern of the depreciation recorded for plant assets, paying particular attention to the issues raised by the plant manager. 6. For what reasons are plant assets retired? Define inadequacy, supersession, and obsolescence. 7. What basic questions must be answered before the amount of the depreciation charge can be computed? 8. What are the major factors considered in determining what depreciation method to use? 9. What is component depreciation? 10.Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree? Discuss. 11.Wall(in Inc. is considering the writedown of its longvtenn plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a writedown is permitted. 12. Last year, Wyeth Company recorded an impairment on an asset held for use. Recent appraisals indicate that the asset has increased in value. Should Wyeth record this recovery in value? 13. Explain how gains or losses on impaired assets should be reported in income. 14. It has been suggested that plant and equipment could be replaced more quickly if depreciation rates for income tax and accounting purposes were substantially increased. As a result, business operations would receive the benefit of more modern and more efficient plant facilities. Discuss the merits of this proposition. 15. List (a) the similarities and {b} the differences in the accounting treatments of depreciation and cost depletion. 16. Describe cost depletion. 17. Explain the difference between exploration and development costs as used in the extractive industries. 18. In the extractive industries, businesses may pay dividends in excess of net income. What is the maximum permissible? How can this practice be justified? 19.Lansbury Company purchases equipment on January 1, Year 1, at a cost of 513,000. The asset is expected to have a service life of 12 years and a residual value of 50,000. Instructions [5) Compute the amount of depreciation for each of years 1 through 3 using the straightrline depreciation method. [0) Compute the amount of depreciation for each of years 1 through 3 using the sum~of-the~ years'-digits method. [c] Compute the amount of depreciation for each of years 1 through 3 using the double decliningrbalance method. (In performing your calculations, round constant percentage to _l ill-73 :1 :_'; l' the nearest one-hundredth of a point and round answers to the nearest pound.) 20.I-iasselbaclc Company acquired a plant asset at the beginning of year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, [2) the sum-of-the-years'- digits method, and (3) the double-declining-balance method. Sun-oi-tho- Dottie-Decim- Yaer Shaun-Um told-Digits Balance 1 8 0.000 015,000 $20,000 2 0.000 12.000 12.000 3 0.000 0.000 T200 4 0,000 0.000 4.320 5 0,000 3.000 1 .400 Total! \"5.000 845.000 \"5.000 Instructions Answer the following questions. (a) What is the cost of the asset being depreciated? {b} What amount. if any, was used in the depreciation calculations for the residual value for this asset? (c) Which method will produce the highest charge to income in year 1? (0} Which method will produce the highest charge to income in year 4? (0) Which method will produce the highest book value for the asset at the end of year 3? (f) If the asset is sold at the end of year 3. which method would yield the highest gain [or lowest loss} on disposal of the asset