Question

Which of the following statements is correct?

a. Depreciation expense reflects the decrease in the current value of an asset over time.
b. Depreciation is not intended to report an asset at its current value.
c. An asset's cost minus its accumulated depreciation is equal to its selling price.
d. An asset's book value is always less than its selling price.

Answer 1

a. Depreciation expense reflects the decrease in the current value of an asset over time.

Step-by-step explanation:

Depreciation is an accounting concept of allocating the cost of a physical asset over its useful life. The depreciation expense in a period shows the book value that the asset has lost in the period. Accumulated depreciation is the total value of depreciation recorded for an asset up to a specific date.

Depreciation helps a business spread the cost of an asset over several years. Acquiring an asset is costly. To expense, the cost of the asset on a single financial year is not prudent as the asset will generate revenue for the company for many years. Depreciation spreads the cost of the asset to the years it is expected to be economically viable.