Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Depreciation (Straight Line and Diminishing Balance Methods)

Which of the following is NOT a factor that is considered in computing the periodic depreciation charge on a depreciable asset under the AS 6 approach?

Current market price at each year end is not considered. Depreciation allocates the depreciable amount, which is cost less estimated residual value, over the useful life. Cost, useful life and residual value drive the charge, whereas market fluctuations are irrelevant because depreciation is not a process of valuation.

  1. AHistorical cost of the asset
  2. BEstimated useful life of the asset
  3. CEstimated residual (scrap) value of the asset
  4. DCurrent market price of the asset at each year endCorrect

Explanation

Depreciation under AS 6 is based on the historical cost (or substituted amount), the expected useful life and the estimated residual value. It is an allocation of cost, not a valuation exercise, so year-end market price does not enter the computation. Hence market price is the factor not considered.

Did you get it right without looking?

One question tells you little. A timed set on Depreciation (Straight Line and Diminishing Balance Methods) shows your real accuracy, how long you take and where you lose marks.

Practise Depreciation (Straight Line and Diminishing Balance Methods)Free diagnostic mock

More Depreciation (Straight Line and Diminishing Balance Methods) questions