Which of the following terms describes the provision made for the loss in the value of an asset that has a legal life span?
Answer Details
Depreciation is the term that describes the provision made for the loss in the value of an asset that has a legal life span. Depreciation is a process by which the cost of a tangible asset is allocated over its useful life. The value of an asset decreases with time and usage, and so depreciation is used to account for this decrease in value. It is a non-cash expense, meaning that it does not involve an actual cash outlay, but rather an accounting charge that reduces the book value of the asset over time. This reduction in the book value is considered a provision for the eventual replacement of the asset at the end of its useful life.