Which term describes the process of allocating the cost of a fixed asset over its useful life?

Which term describes the process of allocating the cost of a fixed asset over its useful life?

• A. Depreciation expense
• B. Amortization
• C. Depletion
• D. Impairment

Answer: (A)

Depreciation is the systematic allocation of the cost of a tangible fixed asset over its estimated useful life. This reflects how the asset’s value is consumed through use, wear, and obsolescence each period. By recognizing a depreciation expense annually, the expense matches the periods that benefit from the asset, rather than taking the full cost in the purchase year. The asset’s carrying amount on the balance sheet also declines over time as depreciation accumulates. Other terms cover different situations: amortization applies to intangible assets with finite lives, such as patents or software; depletion deals with natural resources as they are extracted; impairment is a one-time write-down when the asset’s recoverable amount falls below its recorded value.

Depreciation is the systematic allocation of the cost of a tangible fixed asset over its estimated useful life. This reflects how the asset’s value is consumed through use, wear, and obsolescence each period. By recognizing a depreciation expense annually, the expense matches the periods that benefit from the asset, rather than taking the full cost in the purchase year. The asset’s carrying amount on the balance sheet also declines over time as depreciation accumulates.

Other terms cover different situations: amortization applies to intangible assets with finite lives, such as patents or software; depletion deals with natural resources as they are extracted; impairment is a one-time write-down when the asset’s recoverable amount falls below its recorded value.