CA Foundation · Accounting · Depreciation and Amortisation
Which factor is NOT directly considered in determining the amount of depreciation to be charged for a period?
Current market price is not considered when computing depreciation. Depreciation allocates historical cost, less estimated residual value, over the estimated useful life. It is a cost allocation process rather than a valuation, so changes in market price do not affect the periodic charge.
- AThe current market price of the asset at the balance sheet dateCorrect
- BHistorical cost of the asset
- CEstimated useful life of the asset
- DEstimated residual value of the asset
Explanation
Depreciation depends on historical cost, estimated residual value and estimated useful life. The fluctuating market price is not used, because depreciation is an allocation of cost and not a valuation. Hence market price is the factor not considered.
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