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Standard XII
Accountancy
Question

Which one of the following statements is correct?
  1. Depreciation is not the process of valuation of asset-it is a process of allocation of cost of asset to the period of its economic life.
  2. If the cost of machinery is more than the book value, then depreciation need not be provided.
  3. When the plant and machinery and maintained in good condition, through repairs and renewals, depreciation need not be provided.
  4. In the absence of any legal provisions, if the auditor finds that provision made for depreciation is inadequate, then he is not required to refer to it in his report.

A
When the plant and machinery and maintained in good condition, through repairs and renewals, depreciation need not be provided.
B
In the absence of any legal provisions, if the auditor finds that provision made for depreciation is inadequate, then he is not required to refer to it in his report.
C
Depreciation is not the process of valuation of asset-it is a process of allocation of cost of asset to the period of its economic life.
D
If the cost of machinery is more than the book value, then depreciation need not be provided.
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Solution
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Option A is Correct One.
Depreciation is technically a method of allocation, not valuation, even though it determines the value placed on the asset in the balance sheet. Any business or income producing activity using tangible assets may incur costs related to those assets.

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