Question

Provision for depreciation is _____.
1. A charge against the profit
2. An appropriation of the profit
3. Substitute for the repairs
4. writing off losses

Answer 1

Correct Answer - Option 1 : A charge against the profit

The correct answer is A charge against the profit

• Depreciation- The fall in the monetary value of an asset due to its constant use, wear, and tear, obsolescence is termed as Depreciation. It is considered a yearly non-cash expense of a company.
• Provision for depreciation- It's a provision created to record the value of depreciation on assets separately. The purpose of this account is to transfer the total amount of depreciation into the assets account at the time of sale of the assets. This separate account maintained for depreciation allows more accuracy in the accounting of an asset.

• A charge against the profit- These are those expenses that are not dependent on profits. These are deducted from revenues in arriving at the company's net profit or a net loss. These are recorded in the company's Profit and Loss Account. 
• Provision for depreciation is a charge against profit, as it is deducted from revenues independent of whether the company is earning profit or incurring a loss.

• Appropriation of the profit- These expenses are deducted from net profits obtained from the Profit and Loss account. These expenses are payable only when the firm earns profits. These are recorded in the Profit and Loss Appropriation Account which is prepared after Profit and Loss account for the distribution of leftover profit among partners. For Example- Interest on capital, Salary to partners, etc.