GCEFinancial AccountingDepreciation2024

Which of the following best describes depreciation in accounting?

AThe market value reduction of a fixed asset due to economic conditions
BThe systematic allocation of the cost of a tangible fixed asset over its useful lifeCORRECT
CThe total loss in value of an asset when it is sold below cost
DThe annual cash set aside to replace a worn-out fixed asset
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Why the answer is B, and why the others tempt you.
Depreciation is the systematic allocation of the depreciable amount of a tangible fixed asset over its estimated useful life. It is a non-cash charge that matches the cost of using the asset against the revenue it helps to generate. Options A, C, and D confuse depreciation with market value changes, losses on disposal, and sinking fund provisions respectively.
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