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CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)

As defined in AS 10, depreciation is best described as:

Under AS 10, depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. It spreads cost over the periods benefiting from the asset. It is not a valuation exercise, a replacement fund or a repair charge.

  1. AThe systematic allocation of the depreciable amount of an asset over its useful lifeCorrect
  2. BThe fall in the market value of an asset during the year
  3. CThe amount set aside to buy a replacement asset
  4. DThe cost of repairs needed to keep the asset in working condition

Explanation

AS 10 defines depreciation as the systematic allocation of the depreciable amount of an asset over its useful life. It is an allocation of cost, not a measure of market value decline. Setting aside funds for replacement is a financing decision, not depreciation.

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