Final answer:
The inclusion of depreciation breaches the qualitative characteristic of relevance due to involvement of estimates, but supports reliability and is in line with accrual basis accounting by spreading the cost of an asset over its useful life.
Step-by-step explanation:
The question involves the accounting concepts of qualitative characteristics and assumptions underlying financial reporting, with a focus on the treatment of depreciation in the income statement. Depreciation represents the allocation of the cost of tangible assets over their useful lives and is included in the income statement to match expenses with revenue, adhering to the matching principle. This inclusion can be argued to breach the qualitative characteristic of relevance because depreciation involves estimations of useful life and salvage value, which may not precisely reflect current or future economic benefits. However, it supports the qualitative characteristic of reliability because it systematically and reasonably assigns cost based on the asset's consumption.
Moreover, including depreciation aligns with the accounting assumption of accrual basis accounting, which records expenses when they are incurred rather than when payment is made. Thus, by allocating cost over time, depreciation ensures that financial statements provide a true and fair view of the company's financial performance over an accounting period, in line with the faithful representation aspect of the reliability characteristic.