What is the expense representing wear and tear on a piece of company property, recorded on the income statement as an operating expense?

• A. AMORTIZATION EXPENSE
• B. DEPRECIATION EXPENSE
• C. DEPLETION EXPENSE
• D. IMPAIRMENT CHARGE

Answer: (B)

Wear and tear on a tangible fixed asset is accounted for as depreciation expense. Depreciation is the systematic allocation of the cost of a physical asset over its estimated useful life, reflecting its consumption in the business. It is shown on the income statement as an operating expense and reduces reported profit, while the asset’s book value on the balance sheet decreases through accumulated depreciation.

Amortization expense applies to intangible assets (like patents, software, or goodwill with finite lives), not physical equipment. Depletion expense is used for natural resources as they are extracted. An impairment charge, on the other hand, is a write-down when an asset’s market value or recoverable amount falls below its carrying amount and is not part of regular wear and tear.