CA Foundation · Accounting · Depreciation and Amortisation
Which statement about depreciation is correct as per the accounting concept taught at Foundation level?
Depreciation is the systematic allocation of an asset's depreciable amount over its useful life. It is not a market valuation, not a cash fund for replacement, and it is charged every year irrespective of whether the business makes profit or loss.
- AIt is a process of valuing the asset at its current market price each year
- BIt is a process of allocating the depreciable amount of an asset over its useful lifeCorrect
- CIt is a fund of cash set aside to replace the asset
- DIt is charged only in years in which the business earns a profit
Explanation
Depreciation is a systematic allocation of the depreciable amount over the useful life; it is not valuation. It is a non-cash charge and does not create a cash fund by itself. It must be charged even in years of loss.
Did you get it right without looking?
One question tells you little. A timed set on Depreciation and Amortisation shows your real accuracy, how long you take and where you lose marks.
More Depreciation and Amortisation questions
- A company changes its depreciation method retrospectively, and recomputation shows that depreciation charged in earlier years was excessive.…
- Sharma Traders bought furniture on 1 April 2022 for ₹2,00,000 and depreciates it at 10% per annum on the written-down value method. The book…
- When an asset is sold during the year, which treatment of depreciation is correct under ICAI's Foundation-level approach?
- Under the Written Down Value method, depreciation is charged every year at a fixed percentage on which of the following?
- Which of the following is a disclosure required when the depreciation method is changed, as per AS 6?
- Rajesh Enterprises had machinery with a book value of ₹3,00,000 (cost ₹5,00,000, accumulated depreciation ₹2,00,000). On 31 March 2024 it wa…