Which term describes the cost allocation of tangible fixed assets over their useful lives?

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Multiple Choice

Which term describes the cost allocation of tangible fixed assets over their useful lives?

Explanation:
Depreciation is the allocation of the cost of tangible fixed assets over their estimated useful lives. This systematic expense recognizes that the asset provides value over multiple periods, so the initial purchase price is matched with the revenues it helps generate each period. Amortization applies to intangible assets like patents or software, not physical assets. Depletion is used for natural resources as they are extracted. Impairment is a write-down when an asset’s recoverable amount falls below its carrying amount, not the ongoing allocation of cost over time. That makes depreciation the correct term.

Depreciation is the allocation of the cost of tangible fixed assets over their estimated useful lives. This systematic expense recognizes that the asset provides value over multiple periods, so the initial purchase price is matched with the revenues it helps generate each period. Amortization applies to intangible assets like patents or software, not physical assets. Depletion is used for natural resources as they are extracted. Impairment is a write-down when an asset’s recoverable amount falls below its carrying amount, not the ongoing allocation of cost over time. That makes depreciation the correct term.

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