When an asset is depreciated,
A) its cost is allocated over a period of time
B) the firm's earnings and taxes are increased
C) the cash flow from an investment is reduced
D) the cost of the asset is increased to reflect appreciation in its value

Question

When an asset is depreciated,​
A) ​its cost is allocated over a period of time
B) ​the firm's earnings and taxes are increased
C) ​the cash flow from an investment is reduced
D) ​the cost of the asset is increased to reflect appreciation in its value

Quizplus · Accepted Answer

When an asset is depreciated, its cost is allocated over a period of time. This means that the cost of the asset is spread out over its useful life, rather than being expensed all at once in the year of purchase. This reduces the amount of taxable income for the year and improves the company's cash flow by allowing for smaller, regular expenses rather than one large expense upfront. Depreciation does not increase the cost of the asset or impact its appreciation value.

When an Asset Is Depreciated,​

When an Asset Is Depreciated,