The factors necessary to compute depreciation include all of the following, except:

• A. Acquisition cost
• B. Market value at year-end
• C. Estimated useful life
• D. Residual (salvage) value

Answer: (B)

Verified step by step guidance

1. Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. It is used to account for the wear and tear, obsolescence, or reduction in value of an asset over time.
2. Identify the factors necessary to compute depreciation: These typically include acquisition cost, estimated useful life, and residual (salvage) value. These factors are essential for calculating depreciation using methods such as straight-line, declining balance, or units of production.
3. Clarify why acquisition cost is necessary: Acquisition cost represents the total cost incurred to purchase the asset, including purchase price, shipping, installation, and other related expenses. This is the starting point for calculating depreciation.
4. Explain the role of estimated useful life: Estimated useful life is the period over which the asset is expected to be used in operations. It helps determine the duration over which the depreciation expense will be spread.
5. Discuss residual (salvage) value and why market value at year-end is not included: Residual value is the estimated value of the asset at the end of its useful life, which is subtracted from the acquisition cost to determine the depreciable amount. Market value at year-end is not relevant for computing depreciation because depreciation is based on the original cost and usage, not the fluctuating market value.