Depreciation Matches Asset Costs to Revenues

Steps:

• Identify purpose: Depreciation spreads fixed asset cost over useful life in financial statements.
• Apply matching principle: Expenses (depreciation) pair with revenues generated by the asset.
• Review accounting standards: GAAP/IFRS require it for accurate profit reporting, not tax or valuation primarily.
• Evaluate options: Only reason 2 aligns with core accounting objective.

Why B is correct:

• Depreciation follows the matching principle (GAAP), allocating asset cost as an expense against period revenues for true profitability.

Why the others are wrong:

• A includes 1 (tax reduction), but depreciation's primary role is financial reporting, not tax minimization.
• C includes 3 (asset valuation), but charging depreciation expenses income, not directly setting market-based balance sheet values.
• D selects only 3, ignoring the expense allocation essential to income measurement.

Final answer: B