Day: November 4, 2019

The purpose of charging depreciation as an expense in the profit and loss account is . . .

Select ONE answer:

1. to allocate the cost of acquiring fixed assets over the accounting periods expected to benefit from their use.
2. to ensure that funds will be available for the eventual replacement of fixed assets.
   to reduce the figure shown in the balance sheet for fixed assets from the cost of
3. those fixed assets to their estimated market value.
4. to comply with the prudence concept.

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct
2. Charging depreciation, of itself, does not necessarily mean that funds will be available for the eventual replacement of fixed assets.
3. Cost less depreciation is unlikely to equal market value.
4. It is the accruals concept, not the prudence concept, which underlies the charging of depreciation as an expense in the profit and loss account.

 

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