Depreciation Matches Costs to Revenue Periods

Steps:

• Identify depreciation as a method to spread the cost of non-current assets over their useful life.
• Recall the matching principle in accounting, which requires expenses to align with the revenue they generate.
• Evaluate each option against this principle to find the best match.
• Confirm the option that directly reflects cost allocation for benefiting periods.

Why A is correct:

• Depreciation allocates the asset's cost to accounting periods benefiting from its use, per the matching principle (IAS 16), ensuring expenses match related revenues.

Why the others are wrong:

• B: Realisation concept applies to revenue recognition, not asset cost allocation.
• C: Depreciation is a non-cash expense; it does not generate cash for replacement.
• D: Depreciation reduces book value based on cost, not market value adjustments.

Final answer: A