### What is the primary purpose of determining the useful economic life of an asset? - [x] To allocate the asset's cost over the period it generates economic benefits - [ ] To estimate the resale value of the asset - [ ] To determine the maintenance schedule of the asset - [ ] To decide when to replace the asset > **Explanation:** The useful economic life is primarily determined to allocate the asset’s cost over the period during which it generates economic benefits, influencing how depreciation or amortization is recorded. ### Does useful economic life always match the physical life of the asset? - [ ] Yes, they always match. - [x] No, useful economic life is the period it generates economic benefits, not its physical lifespan. - [ ] Yes, but only for intangible assets. - [ ] No, useful economic life is shorter than the physical life in all cases. > **Explanation:** Useful economic life refers to the period an asset generates economic benefits for its owner, which can be different from its total physical life due to factors like obsolescence. ### Can an asset's useful economic life be adjusted after it has been set initially? - [x] Yes, it can be reviewed and adjusted based on changes in usage, technology, or business circumstances. - [ ] No, it remains fixed once determined. - [ ] Only if the asset is sold. - [ ] No, changes are not allowed under any conditions. > **Explanation:** Useful economic life can be reviewed and adjusted over time if there are significant changes in the asset’s usage, technological advancements, or business operational changes. ### Which of the following assets would most likely have a longer useful economic life? - [x] Office building - [ ] Computer equipment - [ ] Delivery van - [ ] Software license > **Explanation:** An office building typically has a longer useful economic life compared to items like computer equipment, delivery vans, or software licenses, primarily due to differences in wear and technological obsolescence rates. ### Why is useful economic life important in financial accounting? - [x] It impacts the calculation of depreciation and amortization, affecting income statements and balance sheets. - [ ] It helps decide the operational hours of an asset. - [ ] It determines the pricing strategy for asset-based products. - [ ] It assists in the physical maintenance of the asset. > **Explanation:** Useful economic life is critical as it determines the depreciation and amortization schedules, impacting the financial statements by spreading cost recognition over the period the asset is economically beneficial. ### What happens if an asset is used beyond its useful economic life? - [ ] It stops generating any economic benefits. - [x] It continues to function but is fully depreciated on the books. - [ ] It becomes obsolete automatically. - [ ] It is removed from the financial statements. > **Explanation:** If an asset is used beyond its useful economic life, it continues to function but is fully depreciated on the books, meaning no further depreciation expense is recognized. ### What method allocates the cost of a tangible asset over its useful life? - [ ] Amortization - [x] Depreciation - [ ] Impairment - [ ] Depletion > **Explanation:** Depreciation is the method used to allocate the cost of a tangible asset over its useful life in financial accounting. ### How does shortening the useful economic life of an asset affect annual depreciation expense? - [x] It increases the annual depreciation expense. - [ ] It decreases the annual depreciation expense. - [ ] It has no effect on annual depreciation expense. - [ ] It changes the asset's physical lifetime. > **Explanation:** Shortening the useful economic life increases the annual depreciation expense, as the cost must be spread over a shorter period. ### Why would a business review and potentially change an asset's useful economic life? - [x] To reflect changes in usage, technological advancements, or business operations. - [ ] To alter the resale value. - [ ] To comply with tax requirements solely. - [ ] To accelerate physical maintenance schedules. > **Explanation:** Businesses may review and change an asset's useful economic life to ensure it accurately reflects current usage patterns, technological advancements, or changes in business operations. ### Which depreciation method involves spreading the asset cost evenly over its useful life? - [x] Straight-line depreciation - [ ] Declining balance method - [ ] Units of production method - [ ] Sum-of-the-years-digits method > **Explanation:** Straight-line depreciation spreads the asset cost evenly over its useful life, making it one of the simplest and most widely used methods of depreciation.