Question

Which of the following statements about depreciation is correct?

(A) Each year the accountant adds an amount for depreciation when calculating the company's profit.
(B) To calculate the cash produced by the business, it is necessary to deduct the depreciation charge from accounting profits.
(C) To calculate the cash produced by the business, it is necessary to add the depreciation charge back to accounting profits.
(D) The annual depreciation charge measures the cash that the company has spent on maintaining and renewing its plant and equipment.

Answer 1

Answer:

The correct answer is letter "C": To calculate the cash produced by the business, it is necessary to add the depreciation charge back to accounting profits.

Explanation:

Depreciation indicates how much value was used up for an asset. It also tries to match an asset's cost to the profit this helps the business collect. Depreciation calculations used as income tax deduction offer companies and annual allowance for the use and deterioration of tangible assets. Besides, depreciation must be added to the company's accounting profits to determine the firm's total inflow.