Depreciation is referred to as the reduction in the value of an asset that occurs due to wear and tear during its useful life. Depreciation shows how much of an asset is used up during each accounting period.
It is the process of writing off the value of an asset to the extent of its useful life. As depreciation is calculated for capital assets such as machinery, equipment, etc which are very expensive, therefore, instead of adding the cost in one accounting period, the cost is divided into different accounting periods.
This lets the company earn revenue by utilising the asset. There are many methods of calculating depreciation for assets. Some of which are:
- Straight line method
- Diminishing balance method
Here are some of the true and false questions on depreciation that will help students of Commerce to build a good idea about the concept of depreciation.
1. Depreciation is regarded as a non-cash expense.
a. True
b. False
2. Depreciation is charged on current assets.
a. True
b. False
3. Depreciation is decline in the market value of tangible fixed assets.
a. True
b. False
4. Depreciation must be charged for ascertaining true profit or loss of the business.
a. True
b. False
5. The main cause of depreciation is wear and tear caused by its usage.
a. True
b. False
6. When market value of an asset is higher than book value, then depreciation is not charged.
a. True
b. False
7. In case of intangible assets, depletion term is used.
a. True
b. False
8. Depreciation is charged for reducing the value of asset to its market value.
a. True
b. False
9. Fund for replacement is provided by depreciation.
a. True
b. False
10. If adequate maintenance expenditure is incurred, there is no need of charging depreciation.
a. True
b. False
Answers
| Question | Answer |
| 1 | True |
| 2 | False |
| 3 | False |
| 4 | True |
| 5 | True |
| 6 | False |
| 7 | False |
| 8 | False |
| 9 | True |
| 10 | False |
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