Assertion (A) Depreciation is fall in the value of a Fixed Tangible Asset because of usage, passage of time and a accident etc. Reason (R) Depreciation can be charged on all fixed assets whether they are tangible or intangible. Choose the correct option: (a) Both Assertion and Reason are correct and Reason is the correct explanation of the Assertion. (b) Both Assertion and Reason are correct but Reason is not the correct explanation of the Assertion c) Only Assertion is correct (d) Only Reason is correct
Answers
Explanation:
Assertion (A): Among all methods of charging depreciation on fixed assets, the diminishing balance method is the best method.
Explanation:
Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy.
Depreciation represents how much of an asset's value has been used up.
Depreciation is thus the decrease in the value of assets and the method used to reallocate, or "write down" the cost of a tangible asset (such as equipment) over its useful life span.
There are various types of methods that can be used to calculate depreciation such as the Straight Line Depreciation Method, Diminishing Balance Method, Double Declining Balance Method, Sum Of The Year's Digits Method, Units Of Production Method, etc.
Each of these methods has its own advantages and disadvantages.
The management chooses a depreciation method that is most suitable for its type of business and the not best one.
Thus, it will be wrong to generalize that the diminishing balance method is the best method of depreciation.
The assertion is incorrect.
Reason (R): Diminishing balance method of charging depreciation has been permitted under the Income Tax Act, 1961 for claiming a deduction for depreciation.
Explanation:
Under the diminishing balance method, the amount of depreciation is calculated as a fixed percentage of the reducing or diminishing value of the asset standing in the books at the beginning of the year, so as to bring down the book value of the asset to its residual value.
The amount of depreciation goes on decreasing every year.
That is, the amount of depreciation charged in each period is not fixed but is a gradually decreasing sum.
Depreciation is allowable as expense in Income Tax Act, 1961 on basis of block of assets on Written Down Value (WDV) method. Depreciation on Straight Line Method (SLM) is not allowed. Thus, the reason is correct.
Thus, option 4 is the correct answer.
Answer:
c) only assertion is correct
Explanation:
Depreciation is charged on tangible fixes assets only!