Depreciation Applies Matching and Historical Cost Concepts

Steps:

• Identify key concepts in depreciation: allocation of asset cost over useful life.
• Recall standard concepts: 1. Matching (expenses to revenues), 2. Going concern (long-term use), 3. Prudence (conservative valuation), 4. Historical cost (original purchase price basis).
• Link to depreciation: uses historical cost for basis and matching for periodic expense recognition.
• Eliminate options: select pair involving 1 and 4, as they directly apply.

Why C is correct:

• Depreciation allocates historical cost (concept 4) over periods via matching principle (concept 1), per IAS 16 definition.

Why the others are wrong:

• A: Excludes historical cost; going concern (2) assumes use but doesn't dictate method.
• B: Prudence (3) influences estimates but isn't core to depreciation allocation.
• D: Omits matching (1), essential for expense recognition.

Final answer: C