What is the key difference between economic depreciation and accounting depreciation?
AEconomic depreciation measures decline in market value, while accounting depreciation allocates historic cost over useful life
BAccounting depreciation measures market value losses, while economic depreciation is tax-focused
CEconomic depreciation applies only to current assets, while accounting depreciation applies to fixed assets
DThere is no difference between the two terms
Explanation
* Accounting depreciation systematically allocates historical asset acquisition cost across its estimated operational useful life.
* Economic depreciation reflects the real reduction in asset economic market value due to wear, tear, or obsolescence.
* Tax depreciation follows statutory regulatory formulas (e.g., MACRS).
Exam Relevance
- Topic: Financial Accounting
- Subtopic: Depreciation Concepts
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