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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What are the primary factors that limit the service life of an asset? For each factor, indicate which depreciation method may be most appropriate.

To determine

State the primary factors that limit the service life of an asset, and indicate the depreciation method that would be more appropriate for each factor.

Explanation

Depreciation: Depreciation is a method of reducing the capitalized cost of long-lived operating assets or plant assets for the period the asset is used.

The primary factors that limit the service life of an asset can be divided into two categories. They are,

  • Physical causes, and
  • Functional causes.

Physical causes: Physical cause is a factor that limits the service life of an asset through wear and tear because of the operational use, deterioration and decay. Physical cause of wear and tear suggests the activity method of deprecation whereas, operational use, deterioration and decay are more depends upon the time method of depreciation...

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