Question

Providing depreciation ensures sufficient cash for asset replacement under-

• A. Boom conditions
• B. Inflationary condition
• C. Non inflationary condition
• D. None of the above

Answer 1

The correct option is C Non inflationary condition

Depreciation should be provided irrespective of the increase in value of asset due to inflation. It is not appropriate to omit charging depreciation of a fixed asset on the grounds that its market value is greater than its net book value. If account is taken of such increased value by writing up the net book value of a fixed asset, then, an increased charge for depreciation will become necessary.