Which of the following statements best describes the purpose of depreciation?
Correct answer: C. Allocation of the cost of an asset to the periods in which services are received from the asset
- A. Regular reduction of asset value to correspond to changes in market value as the asset ages
- B. A process of correlating the market value of an asset with its gradual decline in physical efficiency
- C. Allocation of the cost of an asset to the periods in which services are received from the asset
- D. Allocation of cost in a manner that will ensure that Plant and Equipment items are not carried on the Balance Sheet in excess of net realizable value
Explanation
Depreciation is a cost-allocation process, not a regular adjustment to market value. The asset's cost is charged to the periods that receive its services, making D correct.
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