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: Summary of Main Methods

Financial Accounting

8. Long Lived Assets

Depreciation: Summary of Main Methods

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Multiple Choice

Which of the following is true regarding depreciation recapture?

Depreciation recapture occurs when the sale of an asset results in a gain due to previously claimed depreciation deductions.

Depreciation recapture only applies to intangible assets such as patents and copyrights.

Depreciation recapture increases the depreciable base of an asset for future periods.

Depreciation recapture allows a company to avoid paying taxes on gains from asset sales.

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Verified step by step guidance

Understand the concept of depreciation recapture: Depreciation recapture occurs when an asset is sold for more than its adjusted basis (original cost minus accumulated depreciation). The gain attributable to the depreciation deductions previously claimed is 'recaptured' and taxed as ordinary income, not as a capital gain.

Analyze the first statement: 'Depreciation recapture occurs when the sale of an asset results in a gain due to previously claimed depreciation deductions.' This is correct because depreciation recapture specifically addresses the portion of the gain that arises from prior depreciation deductions.

Analyze the second statement: 'Depreciation recapture only applies to intangible assets such as patents and copyrights.' This is incorrect because depreciation recapture applies to tangible assets (e.g., machinery, equipment, buildings) and not exclusively to intangible assets.

Analyze the third statement: 'Depreciation recapture increases the depreciable base of an asset for future periods.' This is incorrect because depreciation recapture does not affect the depreciable base of an asset; it is a tax concept applied at the time of sale.

Analyze the fourth statement: 'Depreciation recapture allows a company to avoid paying taxes on gains from asset sales.' This is incorrect because depreciation recapture ensures that taxes are paid on the portion of the gain attributable to prior depreciation deductions, rather than avoiding taxes.