Chpt 11

Question 1

Define depreciation

Answer 1

Depreciation is the allocation of the cost of a non-current asset over its estimated useful life.

Question 2

Accounting theory applied when charging depreciation expense (M)

Answer 2

Matching theory
The portion of the cost of using the NCA (expense) should be matched against the income earned from using the non-current asset in the same financial period to determine the profit for the period.

Question 3

Accounting theory applied when charging depreciation expense (P)

Answer 3

Prudence theory
According…. Thus, business provides for accumulated depreciation which will be deducted form the original cost of the non-current assets. This is to ensure that non-current assets are not overstated and reflects their net book value.

Question 4

What are causes for depreciation

Answer 4

• Wear and tear
• Obsolescence
• Usage
• Legal limits

Question 5

Accounting theory on how to value its non-current assets

Answer 5

NCA should be valued at net book value. This is according to prudence theory….. Thus business provides for accumulated depreciation which will be deducted form the original cost of the non-current assets. This is to ensure that non-current assets are not overstated and reflects their net book value.