Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

8. Long Lived Assets

Depreciation: Straight Line

Financial Accounting

8. Long Lived Assets

Depreciation: Straight Line

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Multiple Choice

How is the recovery period of an asset determined when using the straight-line depreciation method?

It is always set at 5 years for all assets.

It is determined by the amount of cash generated by the asset each year.

It is based on the estimated useful life of the asset as determined by management or accounting standards.

It is equal to the time it takes for the asset's market value to reach zero.

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Verified step by step guidance

Understand the concept of straight-line depreciation: This method allocates the cost of an asset evenly over its useful life. The recovery period is the time span over which the asset's cost is depreciated.

Recognize that the recovery period is based on the estimated useful life of the asset. This is determined by management or accounting standards, considering factors such as the asset's expected usage, wear and tear, and obsolescence.

Note that the recovery period is not universally set at 5 years for all assets. Different assets have different useful lives depending on their nature and purpose.

Understand that the recovery period is not determined by the amount of cash generated by the asset each year. Depreciation is a non-cash expense and does not directly relate to cash flow.

Clarify that the recovery period is not equal to the time it takes for the asset's market value to reach zero. Depreciation is based on the asset's cost and useful life, not its market value.