Question

What is the adjustment for routine wear and tear of capital goods called?

• A. Gross investment
• B. Net investment
• C. Depreciation
• D. None of these

Hint:

Depreciation is the systematic allocation of the cost of a capital asset over its useful life.

Answer 1

The Correct Option is C

Step 1: Understanding depreciation.
Depreciation refers to the reduction in the value of capital goods due to regular wear and tear, usage, or obsolescence over time. It represents the process by which assets lose value as they are used.

Step 2: Analyzing the options.
(A) Gross investment: This is the total amount spent on capital goods, but it does not account for the reduction in value of existing goods due to wear and tear.
(B) Net investment: Net investment is the amount spent on new capital goods after accounting for depreciation, but it is not the term for the adjustment itself.
(C) Depreciation: Correct. Depreciation is the term used to describe the routine wear and tear or obsolescence of capital goods.
(D) None of these: This is incorrect, as the correct answer is (C).

Step 3: Conclusion.
The correct term for the adjustment for routine wear and tear of capital goods is (C) Depreciation.