Question

The balance in the Accumulated Depreciation account represents the:________.

Answer 1

Answer: The correct answer is d) amount charged to expense since the acquisition of the plant asset.

Explanation: Based on IAS 16: Property, Plant and Equipment, depreciation of an asset commences when the asset is available for use. To buttress the option d above, chosen as correct, the depreciation expense charged commences since the time the asset is put into use, using the acquisition (historical) value and backing out the salvage value.

Depreciation is calculated by different methods. Most commonly used is the straight-line method, which is: (Acquisition amount minus salvage value)/No of years.

On a monthly basis, depreciation charge is recorded to expense and accumulated depreciation by debiting depreciation expense, and crediting accumulated depreciation. This continues immediately the asset is available for use. The accumulated depreciation warehouses all the depreciation expense charged till date (you cannot get this value from depreciation expense, since income statement is zerorized yearly, but balance sheet does not).