What describes the gradual loss in value of an asset caused by physical wear and the passage of time ?
Show answer Hide answer
Answer: C. Depreciation
Explanation
Depreciation describes the gradual loss in an asset's value resulting from physical wear, tear, and passage of time. Physical deterioration reduces operational efficiency and structural integrity as machinery ages in service. Accounting systems systematically record this value reduction as an annual operating expense on financial statements. Fixed assets lose economic utility over time due to continuous utilization in commercial production processes. Depreciation accounting matches capital asset costs with the revenue streams generated throughout their useful lives. Various mathematical methods allocate depreciation expense across operational years depending on corporate goals.
Corporate financial managers track depreciation to ensure accurate asset book values on corporate balance sheets. Tax deductions derived from depreciation reduce net taxable income, preserving crucial working capital for firms. Plant engineers evaluate depreciation rates to schedule timely equipment maintenance and capital replacement programs. Option A depletion refers specifically to the exhaustion of natural resources rather than manufactured asset wear. Option B inflation describes the general increase in prices and fall in purchasing value of money over time. Option D deflation represents a general decline in price levels accompanied by rising currency purchasing power.
- Subject
- Engineering
- Category
- Civil Engineering
- Topic
- —
- Difficulty
- medium
Related questions
Q1. An oil well estimated to contain 5,000,000 barrels was developed at an initial capital outlay of $50,000,000. Using the unit-of-production method, calculate the depletion charge for a year producing half a million barrels.
Show answer Hide answer
Answer: A. $ 5,000,000.00
Using the unit-of-production method, the depletion charge is the initial capital outlay multiplied by the ratio of annual production to total reserves ($50,000,000 * 0.5M / 5M = $5,000,000). Dividing the half million ann...
Q2. How is any non-physical economic effort that directly or indirectly satisfies human desires defined ?
Show answer Hide answer
Answer: A. Services
Services are non-physical economic efforts or intangible acts that directly or indirectly satisfy human desires. Unlike tangible goods, services cannot be stored physically but provide valuable utility to consumers. Matc...
Q3. What term describes any physical economic item that directly or indirectly contributes to satisfying human wants ?
Show answer Hide answer
Answer: D. Goods or commodities
Goods or commodities refer to tangible physical economic items that contribute to satisfying human wants. Tangibility distinguishes physical goods from intangible services within broader economic classification framework...
Q4. What term refers to the value reduction of natural resources such as quarries, oil fields, and mines due to extraction ?
Show answer Hide answer
Answer: A. Depletion
Depletion refers to the exhaustion and corresponding value reduction of natural resources like mines and oil wells due to extraction. Removing minerals, oil, or timber permanently diminishes the remaining physical volume...
Q5. What analytical tool is typically used to compare mutually exclusive alternatives with unequal service lives ?
Show answer Hide answer
Answer: C. Annual cost method
The annual cost method converts all cash flows into an equivalent uniform annual amount. This conversion makes it ideal for comparing mutually exclusive alternatives with unequal service lives. Matching this analytical c...
Q6. What financial security is issued by governments or corporations to secure long-term capital ?
Show answer Hide answer
Answer: C. Bond
Bonds are long-term financial securities issued by governments or corporations to raise capital. Bondholders act as creditors who lend money to the issuing entity in exchange for periodic interest payments. Upon maturity...