Depreciation expense is defined as the difference between purchase price and salvage value.

Depreciation expense is defined as the difference between purchase price and salvage value.

• A. True
• B. It is the sum
• C. It is the product
• D. False

Answer: (A)

Depreciation is the allocation of an asset’s cost over its useful life. The amount that can be depreciated, called the depreciable base, is the asset’s cost minus its salvage value (the expected value at the end of its life). That base is what gets allocated across periods using whatever depreciation method you choose (straight-line, declining balance, etc.). So the statement is correct because the total amount slated for depreciation equals purchase price minus salvage value. The per-period expense depends on the method and life, but the starting point—the depreciable base—is cost minus salvage value. The other ideas (sum, product) don’t describe how depreciation is determined.

Depreciation is the allocation of an asset’s cost over its useful life. The amount that can be depreciated, called the depreciable base, is the asset’s cost minus its salvage value (the expected value at the end of its life). That base is what gets allocated across periods using whatever depreciation method you choose (straight-line, declining balance, etc.). So the statement is correct because the total amount slated for depreciation equals purchase price minus salvage value. The per-period expense depends on the method and life, but the starting point—the depreciable base—is cost minus salvage value. The other ideas (sum, product) don’t describe how depreciation is determined.