Depreciation allocates asset costs over time

Steps:

• Evaluate statement 1: Depreciation reduces carrying value, preventing overstatement of assets on the balance sheet.
• Evaluate statement 2: It systematically expenses the asset's cost over its useful life, reflecting gradual consumption.
• Evaluate statement 3: Historic cost records assets at purchase price, but depreciation adjusts value downward, not for compliance with historic cost.
• Evaluate statement 4: It applies the matching principle, aligning asset costs with revenues generated over time.

Why A is correct:

• A includes 1, 2, and 4, aligning with the matching principle (IAS 16), which requires allocating depreciable amounts over useful life to match expenses with income.

Why the others are wrong:

• B includes incorrect 3, which mislinks depreciation to historic cost.
• C omits valid 2 and 4, focusing only on 1 and wrong 3.
• D excludes valid 1 and 4, retaining wrong 3.

Final answer: A