Accounts 11 I Group 5

What does depreciation mean?

• A) An increase in the value of an asset over time.

• B) A reduction in the value of an asset due to wear and tear or obsolescence

• C) The total cost of acquiring an asset.

• D) The method of valuing inventory at market price.

Answer explanation

Depreciation refers to a reduction in the value of an asset over time, primarily due to wear and tear or obsolescence, making option B the correct choice. The other options describe different financial concepts.

Depreciation is a process of

• a) Valuation of asset

• b) Allocation of cost of asset of cost

• c) Both Valuation of asset and allocation of cost

• d) allocation of expense

Answer explanation

Depreciation is primarily about allocating the cost of an asset over its useful life, making option b) the correct choice. It does not focus on asset valuation or expense allocation in the broader sense.

Which one is not the cause of depreciation?

• Passage of time

• Fashion out

• Price fluctuation

• Continous use of asset

Answer explanation

Price fluctuation does not directly cause depreciation. Depreciation is primarily influenced by the passage of time, fashion obsolescence, and continuous use of an asset, while price changes are market-driven.

Decrease in the value of intangible assets is...................

• A) Amortisation

• B) Depreciation

• C) Deleption

• D) None of the above

Answer explanation

The straight-line method is the most commonly used approach for calculating depreciation, as it evenly allocates the cost of an asset over its useful life, making it simple and straightforward.

What are the objectives/needs of depreciation?

• a) To determine correct profit or loss

• b) To show a true and fair view of the financial position

• c) To provide funds for replacement

• d) All of the above

Answer explanation

Depreciation serves multiple objectives: it helps determine the correct profit or loss, presents a true and fair view of the financial position, and provides funds for asset replacement. Thus, the correct answer is d) All of the above.