Accounting · Depreciation
Depreciation is charged in financial accounts not because it creates a cash outflow in the current period, but because it serves a broader accounting objective. Which of the following best explains the purpose of depreciation?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It reflects only the market value decline of land and buildings
- 2It allocates the cost of a tangible asset over its useful life in a systematic manner✓
- 3It is a tax penalty imposed on firms holding fixed assets
- 4It is a reserve for future expansion of the business
Correct answer
It allocates the cost of a tangible asset over its useful life in a systematic manner
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