Question

Which one of the following is not a cause of depreciation

• A. Misappropriation
• B. Obsolescence
• C. Fall in the market value
• D. Efflux of time

Answer 1

Answer:

A. Misappropriation

• Depreciation is defined as the permanent, continuous, and gradual reduction in the book value of a fixed asset due to usage, passage of time, obsolescence, or exhaustion.
• Causes of Depreciation generally include:
  • Wear and Tear: Physical deterioration resulting from regular usage or operation of the asset.
  • Effluxion of Time: The mere passage of time, which reduces the economic life of assets like leases, patents, or copyrights, even if not actively used.
  • Obsolescence: Assets becoming outdated due to technological advancements, new inventions, or market changes, rendering older models inefficient.
  • Accidents: Unforeseen physical damage or destruction that permanently impairs an asset's value.
  • Depletion: The physical exhaustion of natural resources such as mines, quarries, or oil wells.
• Misappropriation refers to the unauthorized, dishonest, or fraudulent use of assets, funds, or property by individuals.
• Unlike depreciation, which is a systematic accounting process of allocating the cost of a tangible asset over its useful life, misappropriation is an illegal act (theft or embezzlement).
• In accounting, depreciation is a non-cash expense recorded in the profit and loss account, whereas misappropriation represents a loss of capital or asset that is treated as a financial irregularity or fraud, not as a standard business operation cost.