Question

Derek, an accountant, allocates the cost of a piece of earth-moving equipment over a specific period of time. Based on the given information, it can be concluded that Derek is implementing the process of:

Answer 1

Based on the given information, it can be concluded that Derek is implementing the process of Depreciation.            

Explanation:  

When dealing with assets whether fixed or non-fixed, the cost over its useful life is reduced in a systematic manner until it reaches zero. This is known as depreciation. It represents the value of the said asset that has been used up. The significance of depreciation is to allow the company to make revenue from the assets while the proportion of buying cost is expended during its service.

Failure to depreciate assets can negatively affect the company’s profits. There are different methods used to calculate depreciation and all depends on the following factors: salvage value, the asset cost price, and useful life.