UPSC Exam > UPSC Questions > Consider the following statements:1. Deprecia...
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Consider the following statements:
1. Depreciation is the regular wear and tear of the capital
2. Depreciation is accounted for even if no actual expenditure has occurred in an economy.
3. Depreciation also takes into account the sudden unexpected destruction of capital.
Which of the statements given above is/are not correct?
- a)1 only
- b)1 and 3 only
- c)2 and 3 only
- d)3 only
Correct answer is option 'D'. Can you explain this answer?
Verified Answer
Consider the following statements:1. Depreciation is the regular wear ...
- A significant part of the current output of capital goods goes into maintaining or replacing part of the existing stock of capital goods. This is because the already existing capital stock suffers wear and tear and needs maintenance and replacement. A part of the capital goods produced this year goes for the replacement of existing capital goods and is not an addition to the stock of capital goods already existing and its value needs to be subtracted from gross investment for arriving at the measure for net investment. This deletion, which is made from the value of a gross investment in order to accommodate the regular wear and tear of capital, is called depreciation. Hence, statement 1 is correct.
- So new addition to the capital stock in an economy is measured by net investment or new capital formation, which is expressed as: o Net Investment = Gross investment – Depreciation
- Depreciation is an accounting concept. No real expenditure may have actually been incurred each year yet depreciation is annually accounted for. In an economy with thousands of enterprises with widely varying periods of life of their equipment, in any particular year, some enterprises are actually making the bulk replacement spending. Thus, we can realistically assume that there will be a steady flow of actual replacement spending which will more or less match the amount of annual depreciation being accounted for in that economy. Hence, statement 2 is correct.
- Depreciation does not take into account unexpected or sudden destruction or disuse of capital as can happen with accidents, natural calamities, or other such extraneous circumstances. Hence, statement 3 is not correct.
Most Upvoted Answer
Consider the following statements:1. Depreciation is the regular wear ...
Explanation:
Depreciation is the decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. Let's analyze each statement to determine which one is incorrect:
1. Depreciation is the regular wear and tear of the capital:
- This statement is correct. Depreciation is indeed the result of the regular wear and tear of capital assets over time.
2. Depreciation is accounted for even if no actual expenditure has occurred in an economy:
- This statement is also correct. Depreciation is a non-cash expense that reflects the decrease in the value of assets, regardless of whether any actual expenditure has occurred.
3. Depreciation also takes into account the sudden unexpected destruction of capital:
- This statement is incorrect. Depreciation does not account for sudden unexpected destruction of capital assets. Such events are typically covered by insurance or other risk management strategies, but they are not considered in the calculation of depreciation.
Therefore, the correct answer is option 'D. 3 only' as statement 3 is not correct.
Depreciation is the decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. Let's analyze each statement to determine which one is incorrect:
1. Depreciation is the regular wear and tear of the capital:
- This statement is correct. Depreciation is indeed the result of the regular wear and tear of capital assets over time.
2. Depreciation is accounted for even if no actual expenditure has occurred in an economy:
- This statement is also correct. Depreciation is a non-cash expense that reflects the decrease in the value of assets, regardless of whether any actual expenditure has occurred.
3. Depreciation also takes into account the sudden unexpected destruction of capital:
- This statement is incorrect. Depreciation does not account for sudden unexpected destruction of capital assets. Such events are typically covered by insurance or other risk management strategies, but they are not considered in the calculation of depreciation.
Therefore, the correct answer is option 'D. 3 only' as statement 3 is not correct.
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Consider the following statements:1. Depreciation is the regular wear and tear of the capital2. Depreciation is accounted for even if no actual expenditure has occurred in an economy.3. Depreciation also takes into account the sudden unexpected destruction of capital.Which of the statements given above is/are not correct?a)1 onlyb)1 and 3 onlyc)2 and 3 onlyd)3 onlyCorrect answer is option 'D'. Can you explain this answer?
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