SAP Financial Accounting (SAP FI) Practice Exam

Which of the following describes a type of depreciation?

1. Ordinary

2. Exceptional

3. Extraordinary

4. Rare

The correct answer is: Ordinary

The term "ordinary depreciation" refers to the standard method of allocating the cost of a tangible asset over its useful life. This approach aligns with accounting principles that dictate how companies should recognize the wear and tear, usage, and obsolescence of fixed assets like machinery, vehicles, and buildings. Ordinary depreciation typically follows systematic methods such as straight-line, declining balance, or units of production. The choice of method affects the amount of expense recognized in a given accounting period, impacting both profit reporting and tax calculations. Using ordinary depreciation ensures a steady and predictable expense allocation, which is crucial for financial planning and reporting. In contrast, the other terms do not accurately describe established types of depreciation within accounting standards. Exceptional, extraordinary, and rare are not commonly used classifications for depreciation methods in financial accounting. Instead, they may refer to specific circumstances or events that are not standard practice in the context of asset depreciation. Thus, "ordinary" is the correct term for identifying a regular and recognized form of depreciation.