Which term describes the decline in the value of fixed assets over time due to wear and obsolescence?

Which term describes the decline in the value of fixed assets over time due to wear and obsolescence?

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

Answer: (B)

Depreciation is the accounting process of allocating the cost of a tangible fixed asset over its useful life, reflecting how the asset loses value over time through wear, age, and obsolescence. This gradual reduction matches the asset’s consumption with the periods that benefit from it, which is why it’s the appropriate term. Amortization applies to intangible assets, not fixed assets. Impairment is a sudden write-down of value when the asset’s recoverable amount drops below its carrying amount, not the routine decline due to wear. Deterioration is a general, non-technical term for physical decline, but the formal accounting concept used to spread cost over time is depreciation.

Depreciation is the accounting process of allocating the cost of a tangible fixed asset over its useful life, reflecting how the asset loses value over time through wear, age, and obsolescence. This gradual reduction matches the asset’s consumption with the periods that benefit from it, which is why it’s the appropriate term.

Amortization applies to intangible assets, not fixed assets. Impairment is a sudden write-down of value when the asset’s recoverable amount drops below its carrying amount, not the routine decline due to wear. Deterioration is a general, non-technical term for physical decline, but the formal accounting concept used to spread cost over time is depreciation.