Depreciation should not be recorded for an asset that is increasing in value.

Question

Quizplus · Accepted Answer

Depreciation is the method of allocating the cost of an asset over its useful life. It aims to match the cost of the asset with the revenue it generates during its useful life. Therefore, if an asset is increasing in value, it means that its market value or the revenue it generates is higher than its original cost. In such a case, it would not be appropriate to record depreciation because it would not reflect the economic reality of the asset. Instead, the asset should be revalued periodically to reflect its current market value. However, if an asset is losing value over time, depreciation should be recorded to reflect the decrease in its value.

Depreciation Should Not Be Recorded for an Asset That Is