State whether the following statements are true or false:
Depreciation is a non-cash expense.
True: Depreciation is a non-cash expense. It is a book entry to allocate the cost of an asset over its useful life and does not result in an immediate cash outflow.
Depreciation is also charged on current assets.
False: Depreciation is charged on fixed assets, not current assets. The context highlights compliance with laws regarding depreciation on 'fixed assets'.
Depreciation is decline in the market value of tangible fixed assets.
False: Depreciation is the decline in the book value or cost of a tangible fixed asset, not necessarily its market value. It ensures a 'true and fair financial position' rather than tracking market fluctuations.
The main cause of depreciation is wear and tear caused by its usage.
True: The main cause of depreciation is the wear and tear of the asset caused by its usage over time.
Depreciation must be charged so as to ascertain true profit or loss of the business.
True: Depreciation must be charged as a cost against revenue to ascertain the true profit or loss of the business. Without it, profits would be overstated.
Depletion term is used in case of intangible assets.
False: The term 'depletion' is used in the context of natural resources (wasting assets), whereas 'amortisation' is the term typically used for intangible assets.
Depreciation provides fund for replacement.
True: Depreciation helps in providing funds for the replacement of the asset. By charging depreciation, the business retains funds that would otherwise be distributed, ensuring resources are available for replacement.
When market value of an asset is higher than book value, depreciation is not charged.
False: Depreciation is a mandatory charge based on accounting practices and laws. It must be charged regardless of whether the market value of the asset is higher than its book value.
Depreciation is charged to reduce the value of asset to its market value.
False: Depreciation is charged to allocate the cost of the asset over its useful life, not to reduce the value to its market value. The context lists factors like cost, useful life, and salvage value, excluding market value.
If adequate maintenance expenditure is incurred, depreciation need not be charged.
False: Depreciation is an inevitable charge due to wear, tear, and the passage of time. Even with adequate maintenance, assets depreciate and must be replaced eventually.
Explanation
The answers are derived from the fundamental principles of accounting for depreciation as outlined in the context. Depreciation is strictly allocated to fixed assets to reflect their usage (wear and tear) and the passage of time, which helps in presenting a true and fair financial position. It is a non-cash expense that acts as a charge against profit, distinct from provisions for doubtful debts or reserves. The context emphasizes that depreciation is mandatory (compelled by law and accounting practices) and depends on parameters like cost, useful life, and salvage value, rather than market value or maintenance expenditure.