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Question

Refer to the following information to answer the next 4 questions (Q15 to Q18) Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. Tangible assets, such as machinery, vehicles, buildings, and equipment, gradually lose their value over time due to factors such as wear and tear, obsolescence, or technological advancements. Depreciation reflects this decrease in value and helps businesses accurately represent the true cost of using an asset in their financial statements. There are various methods of calculating depreciation, each method has its own set of rules and assumptions, and the choice of method often depends on factors such as the nature of the asset and its expected pattern of use. Depreciation is a crucial concept in accounting that helps businesses accurately account for the wear and tear of tangible assets, ensuring that financial statements provide a more realistic picture of the costs associated with using these assets over their useful lives.

Which among the following method is also called as Original cost method, Fixed Installment method or Equal Installment method?

A SLM Correct Answer Incorrect Answer
B WDV Correct Answer Incorrect Answer
C Sum of years digit Correct Answer Incorrect Answer
D Units of production Correct Answer Incorrect Answer
E Any of the above Correct Answer Incorrect Answer

Solution

SLM stands for Straight Line Method. It is also called the Original Cost Method, Fixed Installment Method, or Equal Installment Method. Under this method, the depreciation expense is allocated equally over the useful life of the asset. This means that the same amount of depreciation expense is charged to the income statement each year.

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