Question : An annual allowance for wear and tear of a capital good is known as______.
Option 1: gross investment
Option 2: devaluation
Option 3: depreciation
Option 4: disinvestment
Correct Answer: depreciation
Solution : The correct answer is depreciation .
The annual allowance for wear and tear of a capital good is commonly referred to as "depreciation". Depreciation is a systematic allocation of the cost of a capital asset over its useful life, reflecting the gradual reduction in the asset's value. It is an accounting method used to match the cost of an asset with the revenue it generates over time. Depreciation is deducted from the asset's initial cost over its useful life, helping to spread the cost of an asset across multiple accounting periods.
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