Multiple Choice
What is the primary purpose of using group or composite depreciation methods?
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8. Long Lived Assets
Depreciation: Summary of Main Methods
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Which of the following statements about depreciation expense is true?
A
Depreciation expense allocates the cost of a tangible asset over its useful life.
B
Depreciation expense increases the book value of an asset each year.
C
Depreciation expense is only recorded when an asset is sold.
D
Depreciation expense represents the current market value of an asset.
Verified step by step guidance1
Understand the concept of depreciation expense: Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the wear and tear, obsolescence, or usage of the asset over time.
Analyze the first statement: 'Depreciation expense allocates the cost of a tangible asset over its useful life.' This aligns with the definition of depreciation and is likely correct.
Evaluate the second statement: 'Depreciation expense increases the book value of an asset each year.' This is incorrect because depreciation reduces the book value of an asset over time, not increases it.
Examine the third statement: 'Depreciation expense is only recorded when an asset is sold.' This is incorrect because depreciation is recorded periodically (e.g., monthly or annually) during the asset's useful life, not just at the time of sale.
Assess the fourth statement: 'Depreciation expense represents the current market value of an asset.' This is incorrect because depreciation does not reflect market value; it is an accounting measure of cost allocation.
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