Question

What is the purpose of recording depreciation on play assets?

A) To adjust assets amount on the balance sheet to fair value
B) To allocate the cost of the assets to expense in the accounting periods in which the assets were used to generate revenue
C) To properly apply the Cost Principle
D) To provide funds for the replacement of the assets when it reaches the end of its useful life

Answer 1

The purpose of recording depreciation on play assets is to allocate the cost of the assets to expense in the accounting periods in which the assets were used to generate revenue. Recording depreciation helps match the cost of the assets with the revenue they generate.

Step-by-step explanation:

The purpose of recording depreciation on play assets is to allocate the cost of the assets to expense in the accounting periods in which the assets were used to generate revenue. Depreciation is a method of spreading the cost of an asset over its useful life, instead of expensing the entire cost at once. By recording depreciation, a company can match the expense of using the asset with the revenue generated by its use.

For example, let's say a company purchases a playground set for $10,000 that is expected to last for 10 years. Without recording depreciation, the company would have to expense the entire $10,000 in the year of purchase, which might not accurately reflect the benefits received from using the playground set. By recording depreciation, the company can expense $1,000 per year for 10 years, which better matches the cost of the playground set with the revenue it generates each year.

It's important to note that recording depreciation does not provide funds for the replacement of the assets at the end of their useful life. Instead, it helps to allocate the cost of the assets over their useful life and match that cost with the revenue generated.