Question

Depreciation is a process by which A. the cost of plant and equipment is allocated to expense over the time periods which benefit from the sue of the asset. B. the decline in market value of plant and equipment is determined and recorded C. the difference between current market value and historical cost of plant and equipment is calculated D. replacement funds are accumulated for plant and equipment

Answer 1

B. the decline in market value of plant and equipment is determined and recorded

• Depretiation is a measure of how much value our plant and equipement does loose because of use and the pass of the time.

• If depretiation would not exist, we would register the value of plant and equipment as if they worth the same they did when they were bought, wich would be not real.

• As an example, think about an oven in a bakery after using for some years: it is not in the same conditions that it was when new. This lost in the value of the goods (because of usage in this case), is what depretiations tries to account.