Question

Which of the following best describes the purpose of depreciation expense?

A) To measure the change in market value of the asset.
B) To allocate the cost of the asset over its useful life.
C) To measure the change in replacement cost of the asset.
D) All of the other answers are reasons to record depreciation expense.

Answer 1

The purpose of depreciation expense is to allocate the cost of a fixed asset over its useful life to match the expense with the revenue generated.

Step-by-step explanation:

The purpose of depreciation expense is best described by option B) To allocate the cost of the asset over its useful life. This process matches the expense of the fixed asset to the revenue it generates over the asset's lifetime, reflecting the asset's consumption and the loss of value as it is used in business operations. It is not meant to track market value or replacement cost changes, which are instead subjects of other accounting measurements and estimations if required.