Reasons For Charging Depreciation - SS1 Accounting Past Questions and Answers - page 1
Why is depreciation charged?
To recognize the gradual loss in value of a tangible asset over time
To increase the value of a tangible asset over time
To recover the cost of a tangible asset all at once
To increase the taxable income of a company
What is the matching principle?
The principle that ensures that the expenses related to an asset are recognized in the same accounting period as the revenue it generates
The principle that allows a company to charge depreciation on an intangible asset
The principle that requires a company to increase the value of a tangible asset over time
The principle that requires a company to recover the cost of a tangible asset all at once
What is the primary reason for charging depreciation?
To accurately account for the loss in value of a fixed asset over time
To increase the taxable income of a company
To recover the cost of a fixed asset all at once
To match the expenses associated with an asset with the revenue it generates
How does depreciation affect a company's taxable income?
It reduces the taxable income of a company
It increases the taxable income of a company
It has no effect on the taxable income of a company
It increases the value of a company's assets
Which assets are usually subject to depreciation?
Fixed assets such as buildings, vehicles, equipment, and machinery
Current assets such as cash, inventory, and accounts receivable
Intangible assets such as patents, trademarks, and copyrights
Both fixed and current assets
What is the formula for calculating depreciation?
The formula for calculating depreciation is (Cost of asset - Salvage value) / Estimated useful life of the asset.
What are some methods used to calculate depreciation?
Some methods used to calculate depreciation include straight-line depreciation, declining balance depreciation, and units of production depreciation.