Accumulated Depreciation is a temporary account that is closed each year. True False Question 18 Expenditures that extend the useful life of a plant asset are offset against the asset’s accumulated depreciation account. True False
The Correct Answer and Explanation is :
Let’s break this down.
- Accumulated Depreciation is a temporary account that is closed each year.
- Answer: False Explanation: Accumulated Depreciation is a permanent (or real) account, not a temporary one. This means that it doesn’t get closed at the end of the accounting period. Instead, it accumulates the depreciation expense for the asset over its useful life. Each year, a portion of the asset’s cost is expensed through depreciation, and that total depreciation accumulates in the accumulated depreciation account. This account is paired with the asset’s value on the balance sheet, showing the asset’s book value (original cost minus accumulated depreciation). It carries over into the next year without being reset.
- Expenditures that extend the useful life of a plant asset are offset against the asset’s accumulated depreciation account.
- Answer: False Explanation: Expenditures that extend the useful life of a plant asset are typically capitalized as part of the asset’s value, rather than being offset against the accumulated depreciation account. These are considered improvements or betterments to the asset, which increase its usefulness. They are added to the asset’s value on the balance sheet, and depreciation is calculated based on this new, higher value. Accumulated depreciation, on the other hand, tracks the depreciation that has already been recorded, and adjustments like improvements do not directly reduce it. Instead, the asset’s value is updated, and depreciation continues based on the new value.
Let me also generate a visual to explain the concepts clearly.
Here is the financial illustration that shows the concept of accumulated depreciation, plant asset depreciation, and capital expenditures over time. This should help in visualizing how these accounts interact and how they are handled in accounting. Let me know if you’d like more details!
