Which of the following is representative of how depreciation expense is handled in the face of inflation?
A) It increases annually with the rate of inflation.
B) It decreases annually in nominal terms.
C) The depreciable base is not altered by inflation.
D) The real value of the depreciation is fixed.

Question

Quizplus · Accepted Answer

Depreciation expense is calculated based on the depreciable base, which is the cost of the asset minus its residual value. Inflation does not affect the depreciable base, thus the amount of depreciation expense remains the same over time. However, the purchasing power of the depreciation expense decreases in nominal terms.

Which of the Following Is Representative of How Depreciation Expense