Skip to content

CMA Intermediate · Financial Accounting · Accounting Fundamentals

Which of the following best describes the nature of depreciation as treated in financial accounting under the going concern and accrual concepts?

Depreciation is the systematic allocation of an asset's depreciable amount over its useful life. It matches the cost of the asset with the revenue it helps earn. It is a non-cash charge, not a replacement fund, not a market revaluation, and not dependent on profits.

  1. AA systematic allocation of the depreciable amount of an asset over its useful lifeCorrect
  2. BA fund set aside in cash to replace the asset at the end of its life
  3. CAn adjustment to show the current market value of the asset each year
  4. DA charge made only in years in which the business earns a profit

Explanation

Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life, matching cost with the revenue it helps earn. It is a non-cash charge, so it does not create a cash fund. It is also not a market-value adjustment and must be charged irrespective of profit.

Did you get it right without looking?

One question tells you little. A timed set on Accounting Fundamentals shows your real accuracy, how long you take and where you lose marks.

Practise Accounting FundamentalsFree diagnostic mock

More Accounting Fundamentals questions