Multiple choice

Providing depreciation ensures sufficient cash for asset replacement under

  1. boom conditions

  2. inflationary condition

  3. non inflationary condition

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Providing depreciation ensures sufficient cash for asset replacement only under non-inflationary conditions. In non-inflationary conditions, the accumulated depreciation funds can purchase equivalent replacement assets. During inflation, replacement costs are higher than original costs, so depreciation provisions fall short. During boom conditions, high demand may also push prices higher.

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