Drilling equipment with a five-year useful life is used solely in conjunction with an oil well that has an eight-year life.The equipment should be depreciated over eight years.

Question

Quizplus · Accepted Answer

According to the matching principle of accounting, expenses should be matched with the revenues they help to generate. In this case, the drilling equipment is directly tied to the oil well, which has an eight-year useful life. Therefore, it would be more appropriate to depreciate the drilling equipment over its useful life of five years, rather than the eight-year life of the oil well. This means that the equipment should be depreciated over five years instead of eight years.

Drilling Equipment with a Five-Year Useful Life Is Used Solely