Introduction to Depreciation

What was the main reason for Mr. Jeffrey's sudden financial loss?

• He had a major theft in his company.

• He expanded his business too quickly.

• He invested in new technology.

• He did not account for depreciation.

Which of the following is NOT a reason for asset depreciation?

• Passage of time

• Increase in market demand

• Physical wear and tear

• Obsolescence

Why is depreciation considered a non-cash expense?

• It is recorded only when assets are sold.

• It is a one-time expense.

• It involves actual cash outflow.

• It does not involve any cash leaving the business.

How does depreciation help in financial reporting?

• By increasing asset value

• By overstating profits

• By providing a true and fair view of financial health

• By eliminating all expenses

What is the straight-line method of depreciation?

• Depreciation is charged only in the first year.

• Depreciation is charged based on market value.

• Depreciation is charged equally over the asset's useful life.

• Depreciation is charged based on asset usage.

Which method calculates depreciation on the reduced value of an asset each year?

• Sum-of-the-years-digits method

• Written down value method

• Straight-line method

• Units of production method

Why might a company choose a specific method of depreciation?

• To reduce employee salaries

• To increase asset value

• To avoid paying taxes

• To match industry standards

What is the realizable value of an asset?

• The value after tax deductions

• The market value at any given time

• The value at the end of its useful life

• The initial purchase price

Why is land not subject to depreciation?

• It appreciates over time.

• It is always used for business operations.

• It does not wear out or become obsolete.

• It is not a fixed asset.

What is the primary purpose of depreciation in accounting?

• To allocate the cost of an asset over its useful life

• To provide a tax advantage

• To increase company profits

• To reduce the number of assets