The Purpose of Depreciation Is to ________

question 30

Multiple Choice

The purpose of depreciation is to ________.

• A) establish the current replacement cost of a fixed asset
• B) accumulate funds to replace a fixed asset
• C) set aside cash to replace a fixed asset
• D) allocate the original cost of a fixed asset to the periods that benefit from the use of the fixed asset

---

Definitions:

Carrying Cost

The complete expense associated with maintaining stock, which encompasses costs for storage, management, decrease in value, and missed opportunities.

Order Costs

Expenses associated with placing orders for products or services, including costs involved in ordering and receiving goods.

Effective Annual Rate

The interest rate on an investment or loan that is adjusted for compounding over a specified period, often annually.

Credit Terms

Conditions under which credit is extended by a lender to a borrower, including the repayment schedule, interest rate, and the term of the loan.