 In this presentation we're going to take a look at multiple choice questions related to property, plant, and equipment. First question. Depreciation A keeps the asset recorded at market value. B can be recorded using an appraisal. C is the process of allocating the cost of equipment to an asset account. D includes the maintenance cost. E allocated the cost over useful life. So depreciation is the question we're going to go through a process of elimination. So depreciation A keeps the asset recorded at market value. Now you want to keep this this important point because it's going to be asked in multiple choice questions multiple different ways and it's important just to know in general that we're going to be allocating the cost not really keeping in alignment with the market value. So in other words our estimate may not line up to the market value going forward as we allocate the cost out but we're still going to go through the process of allocating the cost out not necessarily being in an alignment with with the market value. In other words the market value could even go up and we would be writing it down because we're allocating the cost to the useful life. So it's not going to be A. B says can be recorded using an appraisal. Now typically when we think of the depreciation we might use an appraisal in order to break it out between different types of like a lump sum purchase between like land and building but typically we don't use an appraisal we just use the cost. So I'll keep it for now in case there's no better answer. C is the process of allocating the cost of equipment to an asset account. So it is the process of allocating the cost but not really to an asset that's what we're going to record at at the beginning and then we're going to then we're going to allocate the cost to the expense the timing accounts when appropriate as we're using them. So that's not going to be C because it's not going to an asset it's going to expense. D includes the maintenance cost. The maintenance cost is going to be included in the cost of the asset it's not really going to be I mean it might be included when it's not going to be included in the cost of the asset unless it was used in order to put the asset into its useful life. The normal maintenance if we're talking about an oil change or something like that will just be expense not as part of depreciation but separately. So it's not going to be D. E says allocate the cost over the useful life and that seems most appropriate to what depreciation is. So we're left with B and E. So depreciation either B can be recorded using an appraisal or E allocated the cost over the useful life. And I think of those two E's the the more appropriate choice that's what depreciation is going to do allocate the cost. So final answer depreciation E allocates the cost over useful life. Next question property plant and equipment useful life is A estimated time it will be used in operations B allocating market value C is always less than one year D determined by the tax code and E determined by law. So let's go through this again see if we can eliminate some of these with the process of elimination. Property plant and equipment useful life is A estimated time it will be used in operations. That seems pretty good. It seems pretty that because that's what the estimated useful life will be. Let's go through the rest of them see if we can eliminate them. B says allocating market value. Now this could be tempting to us at first because we might be thinking well if we are having a useful life that's kind of what it's for is to allocate the depreciation. But note that we're not trying to get to market value necessarily we are getting to the book value or allocating cost. So whenever something says market value with depreciation be skeptical on it because we're not really trying to line up the market value we're trying to line up the cost to the useful life. C says it's always less than one year usually it's going to be more than one year because we're depreciating the useful life will typically be over a year when we're talking about property plants and equipment. D says determined by the tax code. Now if you were doing tax depreciation not not for generally accepted accounting principles but for the tax for taxes you have a lot stricter regulations in terms of what will be the useful life and what methods will be used. But when we're talking about bookkeeping generally accepted accounting principles financial statements then it's not the case. So be careful there because you know we will often have two sets of depreciation tables one for taxes one for books one for the purpose of whatever tax code is which could be many other purposes you know like stimulating the economy and whatnot other than just presenting the financial statements well whereas on the books side our goal is to present the financial statements as most correctly as possible as in the most useful way. So E says determined by law and again the tax code is kind of law so that would what is law so those two would be similar in nature and the only way this would be this one would be true and this one would not be true is if is if the the law was something other than the tax code. On the other hand the tax code couldn't really be true and and not have it be law as well I mean if this one was true this one would have to be true because the tax code is law so so in any case we'll eliminate those and we're left with a property plants and equipment useful life is a estimated time it will be used in operations. Next question which is not included when calculating depreciation A cost B salvage value C useful life D depreciation method E appraised value so if we go through this again which is not included when calculating depreciation A the cost well it's going to be pretty necessary we're going to need the cost to calculate depreciation and you might want to think about the most easy way to calculate depreciation before going about this would probably be the the straight line method where we would take the cost minus the salvage and that would give us the the amount to be depreciated to be depreciated and then we're going to and then we're going to take that and divide it by useful and I probably can't read this life and that will give us depreciation so if we just take that calculation say salvage value well nope that's in there that's going to be in our calculation useful life well we're going to need that in order to do our calculation on the useful life depreciation method you know we're going to need to have some depreciation method this would be the straight line method but we're going to need some method in order to calculate depreciation we'll need to know that now the appraised value might think that we need that and in some cases we might use an appraisal such as a lump sum purchase where we're trying to break it out between land and building but we don't need the appraisal value if we just have property like if I bought a forklift the cost is what we're using not the appraisal value so the appraisal is not something we would typically need so one more time which is not included when calculating depreciation e appraisal value