What is the primary reason for a business to record a depreciation charge?To ensure enough funds are available to replace the asset at the end of its lifeTo allocate the cost of the asset across the specific periods that benefit from its useTo ensure every asset is treated consistently based on the consistency principle

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SSC Financial and Cost Accounting P-1 QUESTION #6073

Question 1

What is the primary reason for a business to record a depreciation charge?

To ensure enough funds are available to replace the asset at the end of its life
To allocate the cost of the asset across the specific periods that benefit from its use
To ensure every asset is treated consistently based on the consistency principle

1 and 2
2 only✔️
2 and 3
3 only

Correct Answer Explanation

The core purpose of depreciation is the matching principle: charging the cost of a non-current asset to the periods it helps generate revenue. It does not guarantee cash for replacement, nor is it purely about the consistency concept itself.

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