Depreciation expense is calculated based on which of the following sets of factors (regardless of the depreciation method used)?

• A. Original cost of the asset and the tax rate only
• B. Annual revenue generated by the asset and the company’s net income
• C. Cost of the asset, estimated salvage (residual) value, and estimated useful life
• D. Market value of the asset, expected selling price, and current interest rates

Answer: (C)

Verified step by step guidance

1. Understand that depreciation expense represents the allocation of the cost of a tangible asset over its useful life.
2. Identify the key factors that influence depreciation expense regardless of the method used: the original cost of the asset, the estimated salvage (or residual) value, and the estimated useful life of the asset.
3. Recognize that the original cost is the amount paid to acquire the asset, the salvage value is the expected value at the end of its useful life, and the useful life is the period over which the asset is expected to be productive.
4. Note that factors like tax rate, annual revenue, net income, market value, expected selling price, and interest rates do not directly affect the calculation of depreciation expense itself.
5. Conclude that the correct set of factors for calculating depreciation expense is: cost of the asset, estimated salvage value, and estimated useful life.