Which statement about depreciation is false?

• A. The straight-line method results in equal depreciation expense each year.
• B. The declining balance method accelerates depreciation in the early years of an asset's life.
• C. Depreciation allocates the cost of a tangible asset over its useful life.
• D. Depreciation increases the book value of an asset over time.

Answer: (D)

Verified step by step guidance

1. Understand the concept of depreciation: Depreciation is the process of allocating the cost of a tangible asset over its useful life. It reflects the wear and tear, obsolescence, or usage of the asset over time.
2. Review the straight-line method: This method results in equal depreciation expense each year, calculated as \( \text{Depreciation Expense} = \frac{\text{Cost of Asset} - \text{Residual Value}}{\text{Useful Life}} \).
3. Examine the declining balance method: This method accelerates depreciation in the early years of an asset's life. It uses a fixed percentage rate applied to the book value of the asset at the beginning of each year.
4. Clarify the false statement: Depreciation does not increase the book value of an asset over time. Instead, it reduces the book value as the asset's cost is allocated over its useful life.
5. Conclude the analysis: The false statement is 'Depreciation increases the book value of an asset over time,' as depreciation decreases the book value of the asset each year.