The tax deductible allowance for the loss in value of a fixed asset due to wear and tear or obsolescence is known as

The tax deductible allowance for the loss in value of a fixed asset due to wear and tear or obsolescence is known as

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

Answer: (A)

Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life to reflect wear, tear, and obsolescence. This annual allocation is the tax-deductible expense that reduces taxable income for assets like equipment, vehicles, and buildings. It differs from amortization, which applies to intangible assets; depletion, which applies to natural resources; and impairment, which is an accounting write-down of value when the asset’s recoverable amount falls below its book value and isn’t the ongoing tax deduction depreciation provides. For example, a $100,000 machine with a 10-year life can be expensed over 10 years through depreciation, lowering annual taxable income.

Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life to reflect wear, tear, and obsolescence. This annual allocation is the tax-deductible expense that reduces taxable income for assets like equipment, vehicles, and buildings. It differs from amortization, which applies to intangible assets; depletion, which applies to natural resources; and impairment, which is an accounting write-down of value when the asset’s recoverable amount falls below its book value and isn’t the ongoing tax deduction depreciation provides. For example, a $100,000 machine with a 10-year life can be expensed over 10 years through depreciation, lowering annual taxable income.