Multiple Choice
An asset is said to be fully depreciated when:
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8. Long Lived Assets
Depreciation: Summary of Main Methods
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In depreciation accounting, which pair correctly identifies the two types of physical depreciation?
A
Wear and tear and deterioration (decay)
B
Straight-line depreciation and declining-balance depreciation
C
Depletion and amortization
D
Functional obsolescence and economic (external) obsolescence
Verified step by step guidance1
Understand that physical depreciation refers to the loss in value of an asset due to physical factors affecting its condition over time.
Identify the types of physical depreciation as those related to the actual physical condition of the asset, such as damage or usage effects.
Recognize that 'wear and tear' refers to the gradual loss of asset utility due to regular use, and 'deterioration (decay)' refers to the natural decline in condition due to environmental or chemical factors.
Distinguish physical depreciation from other types such as functional obsolescence (loss of value due to reduced usefulness) and economic obsolescence (loss due to external economic factors), which are not physical in nature.
Conclude that the correct pair representing physical depreciation is 'wear and tear' and 'deterioration (decay)'.
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