Courses » SS1 » SS1 Accounting » Accounting Exam Topics » Meaning of Depreciation - Questions and Answers

Meaning of Depreciation - SS1 Accounting Past Questions and Answers - page 1

1

What is depreciation?

A

The process of allocating the cost of a tangible asset over its useful life

B

The process of selling a tangible asset at the end of its useful life

C

The process of increasing the value of a tangible asset over time

D

The process of recording the cost of intangible assets on the balance sheet

correct option: a
Users' Answers & Comments
2

What types of assets are usually subject to depreciation?

A

Fixed assets such as buildings, vehicles, equipment, and machinery

B

Current assets such as cash, inventory, and accounts receivable

 

C

Intangible assets such as patents, trademarks, and copyrights

D

All of the above

correct option: a
Users' Answers & Comments
3

What is the purpose of calculating depreciation?

A

To account for the eventual loss in value of a fixed asset

B

To increase the value of a fixed asset on the balance sheet

C

To reduce the company's taxable income

D

All of the above

correct option: a
Users' Answers & Comments
4

How is the amount of depreciation taken each year calculated?

A

Using a specific formula based on the cost of the asset, its estimated useful life, and its estimated salvage value at the end of its useful life

B

Based on the current market value of the asset

C

Based on the company's current income

D

Using a formula based on the company's total assets

correct option: a
Users' Answers & Comments
5

What is the difference between tangible and intangible assets?

Tangible assets are physical assets that have a finite useful life, such as buildings, vehicles, equipment, and machinery. Intangible assets are non-physical assets that lack a physical presence but have value, such as patents, trademarks, and copyrights.

Users' Answers & Comments
6

How does depreciation affect a company's financial statements? 

Depreciation reduces the value of a fixed asset on the company's balance sheet, which in turn reduces the company's taxable income. This means that the company pays less in taxes and has a lower net income. Additionally, depreciation is a non-cash expense that does not affect the company's cash flow.

Users' Answers & Comments
Recommended: SS1 Accounting Lessons
Please share this, thanks: