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What is the purpose of charging depreciation in financial statements?
A To allocate the cost of a non-current asset over the accounting periods expected to benefit from its use
B To ensure that funds are available for the eventual replacement of the asset
C To reduce the cost of the asset in the statement of financial position to its estimated market value
D To account for the ‘wearing-out’ of the asset over its lifeAnswer is A. (this question is from BPP kit 7.1)
It is legit but a statement in Intangible asset (Kaplan Study text “Difference between Tangible and Intangible Assets) says that “depreciation is reflection of wearing out of asset over its useful life”. It makes me think that D is also correct. Can you help me, Professor?The answer is certainly A and I stress this in my free lectures.
The asset will presumably wear out, but that is not the reason for depreciation.
Please stop asking me to explain what Kaplan may or may not state. Our lectures are a complete free course and cover everything needed to be able to pass the exam well.
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