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Doctors Medicines MCQs Q&A

  1. Factor payments
  2. Goods and services
  3. Depreciation
  4. Spending
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1 Answers

Option 3 : Depreciation

The correct answer is Depreciation.

  • Depreciation​
    • “Depreciation” means a decline in the value of fixed assets due to use, the passage of time or obsolescence. 
    • Depreciation is an accounting term used to determine the value of fixed assets.
    • If a business enterprise procures a machine and uses it in a production process then the value of the machine declines with its usage.
    •  Even if the machine is not used in the production process, we can not expect it to realise the same sales price due to the passage of time or the arrival of a new model.
    • Fixed assets are subject to depreciation.
    • Depreciation has a significant effect in determining and presenting the financial position and results of operations of an enterprise.
    • Hence, Depreciation is NOT included in the circular flow of Income in a simple economy.

  •  The Net National Product of an economy is the GNP after deducting the loss due to depreciation.
    • NNP = GNP – Depreciation
    • NNP = GDP + income from abroad - Depreciation
  • Net Domestic Product (NDP) is GDP estimated after deducting the loss due to depreciation
  • This is essentially the net version of GDP, i.e, GDP minus the total value of the wear and tear (depreciation) that occurred in the assets while the products and services were created.
    • NDP = GDP - Depreciation.
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