Which of the following best describes the purpose of depreciation?

Question

Quizplus · Accepted Answer

Depreciation is the allocation of an asset's cost over its useful life, which is the period of time over which the asset is expected to provide economic benefits. This is done to match the expense of using the asset with the revenue it generates, as well as to reflect the reduction in the asset's value due to wear and tear, obsolescence, and other factors. Option A is incorrect because depreciation is not based on the market value of the asset, but on its historical cost. Option B is incorrect because replacement cost is not relevant to the accounting treatment of an asset. Option C is also incorrect because the physical life of an asset may not coincide with its useful life.

Which of the Following Best Describes the Purpose of Depreciation