[amp_mcq option1=”Cost of a fixed asset” option2=”Cost of a fixed asset’s repair” option3=”The residual value of a fixed asset” option4=”Portion of a fixed asset’s cost consumed during the current accounting period” correct=”option4″]
The correct answer is: D. Portion of a fixed asset’s cost consumed during the current accounting period.
Depreciation is the process of allocating the cost of a fixed asset over its useful life. It is a way of accounting for the fact that a fixed asset loses value over time due to wear and tear, obsolescence, and other factors.
The cost of a fixed asset is the amount of money that is paid for it, plus any additional costs that are incurred in getting it ready for use. The useful life of a fixed asset is the period of time that it is expected to be used by the company. The residual value of a fixed asset is the amount of money that the company expects to be able to sell it for at the end of its useful life.
The portion of a fixed asset’s cost that is consumed during the current accounting period is called the depreciation expense. Depreciation expense is recorded in the income statement and is used to reduce the company’s taxable income.
Here is a brief explanation of each option:
- Option A: The cost of a fixed asset is the amount of money that is paid for it, plus any additional costs that are incurred in getting it ready for use. This is not the same as depreciation, which is the portion of the cost of a fixed asset that is consumed during the current accounting period.
- Option B: The cost of a fixed asset’s repair is not the same as depreciation. Depreciation is the portion of the cost of a fixed asset that is consumed during the current accounting period, while the cost of a fixed asset’s repair is the amount of money that is spent to fix a damaged asset.
- Option C: The residual value of a fixed asset is the amount of money that the company expects to be able to sell it for at the end of its useful life. This is not the same as depreciation, which is the portion of the cost of a fixed asset that is consumed during the current accounting period.
- Option D: The portion of a fixed asset’s cost consumed during the current accounting period is called the depreciation expense. Depreciation expense is recorded in the income statement and is used to reduce the company’s taxable income.