The application of the matching principle to depreciation of plant and equipment can best be described as:
A) The matching of the book value of an asset with its market value.
B) Offsetting the revenue of an accounting period with the estimated decline in value of plant and equipment during the accounting period.
C) Offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period.
D) The matching of the depreciation expense reported in the income statement for an accounting period with the accumulated depreciation reported in the balance sheet.

Question

Quizplus · Accepted Answer

The matching principle requires that expenses be matched with the related revenues. Depreciation is a way of allocating the cost of plant and equipment over their useful life. By offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period, we can match the expense (depreciation) with the related revenue. This is why option C is the best choice.

The Application of the Matching Principle to Depreciation of Plant