Question

Depreciation expense is not included on the income statement because the amount is based on the depreciation method chosen by management and hence is not objectively determined.

A. True
B. False

Answer 1

The statement is false; depreciation expense is included on the income statement and is a systematic, rational way to allocate the cost of tangible assets over their useful lives.

Step-by-step explanation:

The statement that depreciation expense is not included on the income statement because the amount is based on the depreciation method chosen by management and hence is not objectively determined is false. Depreciation expense is indeed included on the income statement as part of the expense reporting. While it is true that the amount can vary depending on the method chosen (e.g., straight-line, declining balance, units of production), the accounting principles require that a systematic and rational method be used to allocate the cost of a tangible asset over its useful life. Once a method is chosen, it must be applied consistently, and the expense is reported on the income statement, reducing net income. This reflection of asset use over time helps in matching expenses with revenues, which is a core concept in accrual accounting.