Meaning of depreciation
Options
A
B
C
D
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Depreciation and AmortisationQ-1 | Depreciation and AmortisationQuestion 4737 of 42
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✅ Option — Correct Option
All Options:
- A
- B
- C
- D
Detailed Solution & Explanation
Meaning of depreciation;
An expenditure which results into enduring benefit (long-term benefit) are treated as capital
expenditure/fixed assets. Fixed assets are those assets which are held for use in the business
and not for sale or consumption in the course of production.
Fixed assets which have a limited useful life are known as depreciable assets like, building,
plant and machinery, etc. land is a non-depreciable asset. Revenue expenses are charged to
the year's P&L A/c similarly depreciable fixed assets should be charged over (written off) over
its useful life. This process of systematically allocating depreciable amount (cost less
estimated scrap value) to the P&L accounts over its useful life is known as depreciation
accounting. Amortization of assets which has specific life like patents etc. is also included in
it.
♦ Depreciation is the reduction in the value of fixed assets due to:
its use,
passage of time and
obsolescence.
♦ Depreciation is the apportionment of cost of asset net of estimated scrap value over its
estimated useful life.
Key Concepts to Understand
More Questions from Depreciation and Amortisation
The following details are available of raw material of a manufacturing unit : 1-5-2024 Opening Inventory 100 units @ Rs. 15 per unit 2-5-2024 Purchases 300 units @ Rs. 18 per unit 5-5-2024 Issued for consumption 250 units 16-5-2024 Purchases 500 units @ Rs. 21 per unit 21-5-2024 Issued for consumption 100 units 25-5-2024 Issued for consumption 450 units The manufacturer also incurred the following expenses: ◆ Freight of 300 and unloading charges of 150 at the time of every purchase respectively. ◆ Warehouse rent of ₹ 2,000 per month. ◆ Administrative Expenses of ₹ 1,500 per month. You are required to find out the value of inventory as on May 31, 2024 if the company follows: (a) Weighted Average method for inventory valuation. (b) First in First Out method for inventory valuation. [Jan. 2025, Marks 5]
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