What term describes the periodic allocation of the cost of tangible fixed assets over their useful lives?

• A. Depreciation
• B. Amortization
• C. Depletion
• D. Impairment

Answer: (A)

Depreciation is the term that describes spreading the cost of a tangible fixed asset over the periods in which it helps generate value. When you buy things like buildings, machinery, or equipment, you don’t record the entire purchase price as an expense right away. Instead, you allocate that cost over the asset’s expected useful life, matching the expense with the time it contributes to business operations. This reflects the wearing out, aging, or obsolescence of the asset.

In accounting, depreciation becomes an expense on the income statement, with a corresponding against-asset balance through accumulated depreciation, which reduces the asset’s net book value over time.

Other terms describe different situations: amortization applies to intangible assets (like patents or software), depletion relates to using up natural resources (like minerals or oil), and impairment is recording a loss when an asset’s carrying value exceeds what it’s recoverable from, not a planned allocation over time.