Which of the following is a reason for charging depreciation on non-current assets?

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Question

Which of the following is a reason for charging depreciation on non-current assets?

Accepted Answer

To comply with the matching principle by allocating cost against revenue earned — Award 1 mark for identifying the matching/accruals principle. A is incorrect — depreciation reduces book value, not increases market value. C is incorrect — depreciation is a non-cash expense and does not create a cash fund. D is incorrect — depreciation reflects cost allocation, not resale value.

Answer

To comply with the matching principle by allocating cost against revenue earned

Answer

To create a fund of cash for replacing the asset

Answer

To increase the market value of the asset in the statement of financial position

Answer

To record the current resale value of the asset

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