Question

Q1(c).

A tutorial question and its suggested solution were:

Q. Discuss depreciation in the context of the various accounting concepts.

Solution: The matching principle and the ‘accounting period’ assumption require the recognition of depreciation as the consumption of the economic benefit received from the asset’s historical cost during the period. The balance of unconsumed economic benefits is maintained on the statement of financial position as the fixed asset’s carrying or net book value.

Required:

Explain the answer to the tutorial question in your own words.

Answer 1

Sol :

Depreciation is an accounting method of allocating the cost of tangible assets over the useful life of the asset.Depreciation represents how much of the asset been used.

Depreciation is booked as per matching concept i.e., depreciation of the asset ties the cost of using the tangible asset with the benefit gained over the useful life.

The matching principle under Generally Accepted Accounting principle is an accrual accounting concept that dictates that expenses must be matched to the same period in which the related revenue is generated.As per this concept depreciation ties the cost of using the tangible asset with the benefit gained over the useful life.