Question

In investments, each type of depreciation is defined by a particular event. Which of the following best describes a depreciation type and an event it's tied to?

Answer 1

Economic depreciation refers to the reduction in an asset's value due to physical wear and tear or obsolescence, and is the best match to the event it's tied to, which is physical deterioration.

Step-by-step explanation:

When discussing investments and the types of depreciation, the term often refers to the reduction in the value of an asset over time due to various factors. Economic depreciation is best described as the decrease in an asset’s value as a result of physical wear and tear or technological obsolescence, which fits with option (b). On the other hand, tax depreciation refers to the depreciation that a business can deduct for tax purposes, which is not necessarily tied to the actual physical deterioration of the asset, hence option (c) is not as accurate in describing the event tied to depreciation. Operating depreciation isn't a commonly used term in this context, and depreciating assets for tax purposes isn't directly tied to the taxing authority's actions, making option (d) incorrect. Therefore, option (b) – Economic depreciation and physical deterioration – best describes a depreciation type and the event it's tied to.

Answer 2

b. Economic depreciation is often tied to physical deterioration.

Step-by-step explanation:

Based on the information provided within the question it can be said that the option that best describes this is Economic depreciation is often tied to physical deterioration. This is because physical deterioration refers to the loss of value that an asset has as it ages. Therefore as an asset's value decays this causes economic depreciation as it can no longer buy the same amount of goods and services in the market as before.