Question

Permanent decrease in the value of an asset due to wear and tear, passage of time etc. is known as

• A. Depreciation
• B. Depletion
• C. Reserve
• D. None of these

Answer 1

Answer:

A. Depreciation

DEPRECIATION, PROVISIONS AND RESERVES

Depreciation is the gradual and permanent decrease in the value of a fixed asset due to:

• Wear and tear

• Usage

• Efflux of time

• Obsolescence

“Depreciation is defined as the gradual and permanent diminution in the value of assets due to wear and tear, use or abuse, or efflux of time.”

Other Terms:

• Depletion / Exhaustion: Some assets are of wasting nature due to constant extraction of raw materials. By extraction of natural resources, their des sits are depleted. Decrease in such mineral wealth due to extraction is termed as depletion. Mines, quarries, oil wells etc. come under this category.

• Amortization - Decrease in the value of intangible assets like patents, copyright, trademark etc.