Question

The depreciable cost of an asset is defined as the

A) Original cost less residual value.
B) Value in use.
C) Original cost less accumulated depreciation.
D) Net book value.

Answer 1

The depreciable cost of an asset is the original purchase price minus its expected residual value at the end of its useful life, which is essential for calculating depreciation for accounting purposes. Option A) 'Original cost less residual value' correctly defines depreciable cost.

Step-by-step explanation:

The depreciable cost of an asset is the cost basis for the calculation of depreciation over the asset's useful life. In accounting, the depreciable cost is defined as the original cost of an asset minus its residual value. The residual value, also known as salvage value, is the estimated amount that an entity can obtain from disposing of the asset at the end of its useful life. Therefore, when looking at the options provided, the correct definition of depreciable cost in this context is A) Original cost less residual value.

Depreciation is a process that allocates the cost of a tangible asset over its useful life. This concept helps businesses to spread the expense of an asset over the time it is used to generate revenue. It's an accounting method that corresponds with the revenue earned from the asset, reflecting the wear and tear or obsolescence.