Multiple Choice
Which of the following is NOT a relevant factor in computing depreciation for a fixed asset?
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8. Long Lived Assets
Depreciation: Summary of Main Methods
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Which of the following statements about depreciation is true?
A
Depreciation increases the book value of an asset over time.
B
The straight-line method allocates an equal amount of depreciation expense each year over the asset's useful life.
C
The declining-balance method results in increasing depreciation expense each year.
D
Depreciation is only recorded when an asset is sold.
Verified step by step guidance1
Step 1: Understand the concept of depreciation. 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.
Step 2: Analyze the straight-line method. The straight-line method allocates an equal amount of depreciation expense each year over the asset's useful life. This is calculated using the formula: .
Step 3: Examine the declining-balance method. This method results in higher depreciation expense in the earlier years of the asset's life and lower depreciation expense in later years. It does not result in increasing depreciation expense each year.
Step 4: Clarify the statement about recording depreciation. Depreciation is recorded periodically (e.g., monthly or annually) during the asset's useful life, not only when the asset is sold.
Step 5: Evaluate the given statements and identify the correct one. Based on the explanations above, the correct statement is: 'The straight-line method allocates an equal amount of depreciation expense each year over the asset's useful life.'
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