Question

Select the most appropriate answers from the alternatives given below and rewrite the sentence.

$\mathrm{Depreciation}=\frac{\mathrm{Cost}\mathrm{of}\mathrm{the}\mathrm{Asset\_\_\_\_\_\_\_\_\_\_\_}}{\mathrm{Estimated}\mathrm{Working}\mathrm{Life}\mathrm{of}\mathrm{an}\mathrm{asset}}$
a) Installation charges
b) Cost Price
c) Scrap Value
d) Selling Price

Answer 1

$\mathrm{Depreciation}=\frac{\mathrm{Cost}\mathrm{of}\mathrm{the}\mathrm{Asset}-\mathit{S}\mathit{c}\mathit{r}\mathit{a}\mathit{p}\mathbf{}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}}{\mathrm{Estimated}\mathrm{Working}\mathrm{Life}\mathrm{of}\mathrm{an}\mathrm{asset}}$

Explanation:
Depreciation is calculated as cost of an asset less scrap value divided by useful life of the asset. The depreciation so charged reduces the original cost of the asset to zero or to scrap value at the end of the useful life of the asset. Thus, the scrap value is deducted from the cost of the asset for ascertaining the depreciation amount.