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Accounting concept: What is “depreciation”? Choose the most accurate description in the context of fixed assets and financial reporting.

Difficulty: Easy

Appreciation due to market demand
A gradual reduction in the value of a fixed asset due to wear and tear, usage, or obsolescence
Cash kept aside for emergencies
A tax levied on assets

Correct Answer: A gradual reduction in the value of a fixed asset due to wear and tear, usage, or obsolescence

Explanation:

Definition
Depreciation is the systematic allocation of the depreciable amount of a tangible asset over its useful life, reflecting wear, tear, and obsolescence.

Final Answer
A gradual reduction in the value of a fixed asset due to wear and tear, usage, or obsolescence

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