Question

Depreciation, depletion, and amortization all involve the allocation of the cost of a long-lived asset to expense.

Select one:

a. True.

b. False.

Clear my choice

The cost of natural resources should be allocated among the useful life by using the sum-of-the-years-digits

Select one:

True

False

Answer 1

(1) True

Explanation:

Depreciation, depletion, and amortization all involve the allocation of the cost of long lived asset to expense.

Depreciation is spread out the cost of tangible asset over its useful life. Such as plant and machinery, equipment, building, furniture and fixtures etc.

Depletion allocates the cost of extracting natural resources such as coal mines, timber, minerals oil.

Amortization is deduction of cost of intangible asset over specified time period.such as goodwill, patent, trade mark etc.

(2)

False

Explanation:

Sum of year digit method is used for calculating depreciation of those assets which have their fixed length of time such as tangible and intangible assets. it is not used in the case of depletion of natural resources such as coal mines, timber, minerals well etc. because they have no their fixed length of time. It depends upon amount of resources removed from land.

Depletion is different from depreciation.

Depreciation depends on length of time for which assets are useful, while depletion is related with amount of resources removed from land.

Cost of natural resources should not be allocated among the useful life by using the sum of the year digit method.

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