Depreciation in Income Statement: Identifying Non-Reasons

Steps:

• Recall standard accounting concepts: 1. Matching principle (expenses match revenues); 2. Going concern (business continuity); 3. Accrual basis (recognize expenses when incurred); 4. Historical cost (assets at original cost).
• Determine reasons for depreciation: It allocates asset cost over useful life to match with generated revenue (1), assumes ongoing operations (2), and follows accrual accounting (3).
• Identify non-reasons: Historical cost records assets at purchase price but does not justify periodic expense recognition in income statement (4).
• Match to choices: Only 4 is not a reason, so D.

Why D is correct:

• Historical cost principle fixes asset value at acquisition but depreciation expense reflects usage, not initial recording, per FASB standards.

Why the others are wrong:

• A includes 1 (matching), a valid reason.
• B includes 2 (going concern) and 3 (accrual), both valid.
• C focuses only on 3 (accrual), which is valid.

Final answer: D