Question

1. As time passes, fixed assets, other than land, lose their capacity to provide useful services. To account for this decrease in usefulness, the cost of fixed assets is systematically allocated to expense through a process called;
a) equipment allocation.
b)depreciation.
c) accumulation.
d)matching.

Answer 1

Answer:

The correct option is b. depreciation

Explanation:

For allocation of fixed assets to expense, the following options is available which is shown below:

1. Equipment allocation : The equipment allocation is not decrease its value neither its usage. So, it would not be considered.

Hence, this option is incorrect.

2. Depreciation : Depreciation is a decrease value of assets due to tear, wear, obsolescence of the fixed assets. Moreover, the usage of the assets is also less than before. The production level goes decreasing with passage of time.

Hence, this option is correct.

3. Accumulation: In simple words, accumulation means something which is acquired. But this thing is not match what the question has asked.

So, this option is not right.

4. Matching: The matching principle matches the expenditure with its income on that period. But in the given question, the value of the asset is decrease so, it would be a wrong option as it is not related to the decreasing value, or capacity value.

Hence, this option is incorrect.

Thus, The correct option is b. depreciation