   Chapter 5, Problem 2MC

Chapter
Section
Textbook Problem

Depreciable cost is the (a) difference between original cost and accumulated depreciation. (b) difference in actual cost and true market value. (c) difference between original cost and estimated salvage value. (d) difference between estimated salvage value and actual salvage value.

To determine

State the manner by which the depreciable cost is calculated.

Explanation

Depreciable cost:

Depreciable cost refers to the cost of an asset that is subject to depreciation. Depreciable cost is determined using the given formula:

Depreciable cost  = Original cost Salvage value

Justification for the incorrect answer:

Option a:

The depreciable cost cannot be determined with the difference between the original cost of an asset and the accumulated depreciation because depreciable cost is the cost that is subject to depreciation on an asset throughout the life of an asset. The accumulated depreciation is the cumulative depreciation of an asset in its life. Therefore, Option a is an incorrect answer.

Option b:

Depreciation cost are not determined by the difference in the actual cost and true market  value  because the cost of the book remains in the book value till the business owns the asset, market value does not affect the value of an asset. The depreciation cost is determined by the difference in the original cost and the expected market value of the asset at the end of the useful life and not on true market value of an asset

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