Depreciation is not intended to track the asset's declining market value.

Question

Quizplus · Accepted Answer

Depreciation is a systematic allocation of the cost of an asset over its useful life, and it is not directly linked to the market value of the asset. The purpose of depreciation is to match the cost of the asset with the revenue it generates during its life, and to spread the cost over several periods, rather than charging it all in one year. While the market value of an asset may decline over time due to various factors, such as wear and tear or obsolescence, depreciation is based on the estimated useful life of the asset, which may or may not coincide with its market value.

Depreciation Is Not Intended to Track the Asset's Declining Market