Depreciation Accounting — Important Questions

It becomes zero or equals scrap value

Under the Straight Line Method, the asset is fully depreciated to either zero or its estimated scrap value.

Market price of similar new assets

Factors affecting depreciation are cost, useful life, and scrap value. Market prices of new assets do not directly affect depreciation calculation.

False

Depreciation is a non-cash expense. It represents the reduction in value of an asset but does not involve actual cash outflow.

To show true financial position

Charging depreciation ensures that profits and balance sheets reflect the actual condition of the business by accounting for asset value reduction.