Which term refers to the decrease in value of a tangible asset as it ages?

Which term refers to the decrease in value of a tangible asset as it ages?

• A. Amortization
• B. Inflation
• C. Appraisal
• D. Depreciation

Answer: (D)

Depreciation is the term for the decrease in value of a tangible asset as it ages and wears out. It reflects physical deterioration and obsolescence and is recorded over the asset’s useful life so that cost is allocated over time for accounting and tax purposes. For example, a piece of equipment bought for $100,000 with a 10-year useful life is depreciated each year, lowering its reported value on the balance sheet while recognizing the expense gradually. This differs from amortization, which covers intangibles like patents or software, not physical items. Inflation is a general rise in price levels, not the specific decline in a particular asset’s value due to aging. Appraisal is the current market value assessed at a point in time, not the systematic reduction in value over time. So the term that fits the description is depreciation.

Depreciation is the term for the decrease in value of a tangible asset as it ages and wears out. It reflects physical deterioration and obsolescence and is recorded over the asset’s useful life so that cost is allocated over time for accounting and tax purposes. For example, a piece of equipment bought for $100,000 with a 10-year useful life is depreciated each year, lowering its reported value on the balance sheet while recognizing the expense gradually. This differs from amortization, which covers intangibles like patents or software, not physical items. Inflation is a general rise in price levels, not the specific decline in a particular asset’s value due to aging. Appraisal is the current market value assessed at a point in time, not the systematic reduction in value over time. So the term that fits the description is depreciation.