A company should choose a depreciation method that:
A) best allocates the original cost of the asset to the periods benefited by the use of the asset.
B) saves the most taxes by generating the highest amount of expense and decreasing the net income.
C) generates the most conservative estimate of the depreciation expense for the period.
D) shows the highest amount of net income.

Question

Quizplus · Accepted Answer

The purpose of depreciation is to allocate the cost of an asset over its useful life. Therefore, a company should choose a depreciation method that best allocates the original cost of the asset to the periods benefited by the use of the asset. Choosing a method based on tax savings or generating the highest net income is not necessarily the most appropriate method for accurately reflecting the true financial impact of the asset on the company's financial statements. A conservative estimate of depreciation may result in lower expenses in the short term but may not accurately reflect the actual wear and tear of the asset over time.

A Company Should Choose a Depreciation Method That