27. Which of the following best describes the objective of depreciation? A. To e

Question

27. Which of the following best describes the objective of depreciation? A. To estimate the remaining useful life of an asset. B. To estimate the current market value of the asset. C. To allocate the cost of a long-term asset to the periods in which its use contributes to earning revenue. D. To report the asset on the balance sheet at the estimated amount for which the asset could be sold 28. Losses on the sale of long-term assets for cash: A. Are reported on a net-of-tax basis if material. B. Are the excess of the book value over the cash received C. Are recorded as a credit. D. Are the excess of the cash received over the book value.

Explanation / Answer

27.

Correct answer is C. To allocate the cost of a long term asset to the periods in which its use contributes to earning revenue.

As per the matching principle of accounting, the expenses are accounted in the period in which the revenue, for which such expenses are incurred, is recognised. Since the long term asset help in earning revenue for a period more than one year, its costs need to be accounted for the period such asset is operationa.

28.

Correct answer is B. Are the excess of the book value over the cash received.

Book value of a long term asset is the Cost of the asset as reduced by the depreciated upto the date of sale of asset. The cash received on the sale of asset is the market value of asset which when exceeds the book value lead to Gain on sale while the excess of book value over cash received lead to loss on sale.

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