Important Questions and Answers: Depreciation

DEPRECIATION

37.  Define the term “Depreciation”.

Depreciation is the process of allocating the acquisition cost of the tangible assets less salvage value, if any, in a systematic and a rational manner over the estimated life of the asset.

38. Mention the various method used in depreciation calculation.

The various methods used in depreciation calculation are:

1. Straight line method

2. Declining method

3. Sum of the years digits method

4. Sinking fund or annuity method

5. Service output method

39.            What is service output method of depreciation?

Service output method of depreciation is a type of computing depreciation base on service rendered by an asset

40. What are the causes of depreciation?

The causes of depreciation are:

ü Wear and tear

ü Depletion

ü Obsolescence

ü Lapse of time

41.    Write five reasons for providing depreciation.

The reasons for providing depreciations are:

ü To know the correct profits

ü To show correct financial position.

ü To make provision for replacement of asset

ü To compute tax liability

ü To decide for show much to buy or sell the assets in the second hand market

42.    What is evaluation of public alternatives?

Evaluation of public alternatives is nothing but the selecting of best alternative from the available alternatives.

43.    Define the term inflation?

ü Inflation may be defined as a sustained in the general price level.

ü It is an economic condition where there is a rise in prices resulting in the fall in the purchasing power of money

44.    What is sinking fund?

ü A depreciation fund equal to be actual loss in the value of the asset is estimated for each year.

ü This amount is invested outside the business in a separate account called sinking fund.

45.    What is amortization?

ü Amortization is a routine decrease in value of an intangible asset, or the process of paying off a debt over time through regular payments.

ü Amortization refers to the expensing of intangible capital assets (intellectual property: patents, trademarks, copyrights. Etc,) in order to show their decrease in value as a result of use or passage of time.