Accounting Online Program Certification Practice Test

When is a full year’s depreciation charged for an asset?

1. Year of acquisition

2. Year of disposal

3. Year of estimation

4. Year of assessment

The correct answer is: Year of acquisition

A full year's depreciation is charged for an asset in the year of acquisition because this is when the asset is placed into service and begins to contribute to the company's operations. According to generally accepted accounting principles, depreciation is recognized as an expense to allocate the cost of tangible assets over their useful lives. During the year of acquisition, the asset is actively generating benefits for the business, and thus, it is appropriate to record a full year's depreciation for that asset. This practice reflects the usage and wear of the asset during that reporting period. In contrast, the year of disposal typically does not involve a full year's depreciation unless the asset is used for a significant part of the year before being disposed of. The year of estimation is not relevant to the recognition of depreciation as it pertains more to assessing potential future outcomes rather than accounting for current expenses. The year of assessment could be misunderstood in various contexts, but it generally does not specifically relate to the timing of depreciation for an asset's usage.