Matching Principle and Asset Allocation

Steps:

• Identify key reasons for depreciation: allocate asset cost over useful life and reflect wear/tear in financial statements.
• Evaluate option 1: allocates cost systematically, which is correct per accounting standards.
• Evaluate option 2: assumes incorrect reason like tax savings, which is not primary purpose.
• Evaluate option 3: accounts for asset's finite life and obsolescence, which is valid.
• Select combination excluding invalid reason 2.

Why C is correct:

• C includes 1 (cost allocation) and 3 (useful life reflection), aligning with matching principle in IAS 16.

Why the others are wrong:

• A includes invalid 2 (e.g., tax reduction, not core accounting goal).
• B excludes valid 3 (ignores asset deterioration).
• D excludes valid 1 (misses systematic cost spread).

Not enough information on exact statements 1-3, but based on standard accounting.

Final answer: C