Question

The book value of an asset is calculated by taking the asset's cost minus its accumulated depreciation.

A. True
B. False

Answer 1

True, the book value of an asset is calculated as its cost minus accumulated depreciation. This accounting measure appears on a balance sheet and represents the asset's net value considering its usage and age.

Step-by-step explanation:

The book value of an asset is indeed calculated by taking the asset's cost minus its accumulated depreciation. This statement is True. The book value measures the value of an asset as it appears on the balance sheet, accounting for depreciation that has been accumulated over time. It is important to distinguish this from the market value, which can be higher or lower based on demand, condition, and other factors.

In a broader context, a bank's balance sheet also uses this concept, among others, to show the financial health of the bank. It lists all assets and liabilities, representing the net worth or bank capital as the difference between the total assets and total liabilities. T-accounts are used to show these relationships visually, with assets on the left and liabilities and net worth on the right.

Answer 2

A Business Overhead Expense Policy does not cover the salary or profit of the business owner, which is considered an implicit cost, but it does cover explicit costs such as office rent, utilities, and employee labor.

Step-by-step explanation:

The claim that is not covered by a Business Overhead Expense Policy is the salary or profit of the business owner. These policies typically cover ongoing business expenses such as A. Office rent, C. Utilities, and D. Employee labor in the event that the owner is unable to work due to a disability. However, they do not cover the owner's salary or profits as these are considered implicit costs associated with the opportunity cost of the owner's resources.

Understanding the difference between explicit and implicit costs is crucial in recognizing what is covered by such insurance policies. Explicit costs are actual payments like wages and rent, while implicit costs include things like not earning a salary because the owner is working in their own business, or using property they own as a store without paying rent. These implicit costs are not covered because they are not out-of-pocket expenses.