The amount by which a plant asset depreciated is classified as
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A. B. C. D.Explanation
Depreciation is the periodic allocation of the cost of a tangible, long-term asset over its estimated useful life, and therefore a period expense.
The correct answer to the question is C. an expense.
Depreciation refers to the allocation of the cost of a plant asset over its useful life. It represents the decrease in the value of the asset over time due to factors such as wear and tear, obsolescence, or technological advancements. Depreciation is recorded as an expense on the income statement.
Here's a detailed explanation of each option:
A. A liability: Liabilities are obligations or debts that a company owes to external parties. Depreciation does not create a liability because it does not involve owing money to anyone. Instead, it reflects the systematic allocation of an asset's cost over its useful life.
B. An asset: An asset represents something of value that a company owns or controls. While a plant asset itself is classified as an asset on the balance sheet, the amount by which it depreciates is not considered an additional asset. Depreciation is an accounting measure to reflect the decrease in an asset's value over time, not an increase in assets.
C. An expense: An expense is a cost incurred by a company in its normal operations to generate revenue. Depreciation is treated as an expense because it represents the portion of the plant asset's cost that is "used up" or consumed during a particular accounting period. This expense is recorded on the income statement and reduces the company's net income.
D. Revenue: Revenue refers to the income generated by a company from its primary business activities. Depreciation is not considered revenue because it does not represent the inflow of cash or economic benefits resulting from the sale of goods or services. Instead, it represents the gradual consumption of an asset's value over time.
In conclusion, the amount by which a plant asset depreciates is classified as an expense (Option C) because it represents the allocation of the asset's cost over its useful life, reducing the company's net income.