Which type of asset would not be subject to depreciation?

Which type of asset would not be subject to depreciation?

• A. Heavy Equipment
• B. Computers
• C. Real Estate
• D. Company Vehicles

Answer: (C)

Depreciation is used to allocate the cost of tangible assets that wear out or become less valuable with use over a finite life. Real estate, specifically land, doesn’t wear out in a way that can be measured over time, so land is not depreciated. Buildings or improvements on the land, however, can be depreciated because they have a limited useful life. The other items listed—heavy equipment, computers, and company vehicles—are all expected to decline in value through use and time, so they are depreciated. Thus, real estate is the asset type that would not be subject to depreciation.

Depreciation is used to allocate the cost of tangible assets that wear out or become less valuable with use over a finite life. Real estate, specifically land, doesn’t wear out in a way that can be measured over time, so land is not depreciated. Buildings or improvements on the land, however, can be depreciated because they have a limited useful life. The other items listed—heavy equipment, computers, and company vehicles—are all expected to decline in value through use and time, so they are depreciated. Thus, real estate is the asset type that would not be subject to depreciation.