When a company reports depreciation expense on the statement of comprehensive income:
A) it is based on allocations of cost rather than on the current value of the asset.
B) the firm is reporting that asset's decline in current value during the period.
C) the shortest possible estimated useful life and lowest possible estimated residual value are usually chosen.
D) the company is ignoring the going-concern concept.

Question

Quizplus · Accepted Answer

Depreciation expense is based on allocations of cost rather than on the current value of the asset. This is because accounting principles mandate that companies match expenses with revenues, and depreciation is a way to allocate the cost of an asset over its useful life to the periods in which it generates revenue. Therefore, the depreciation expense reported on the statement of comprehensive income is not a reflection of the asset's decline in current value during the period, but rather a systematic allocation of its cost over time.

When a Company Reports Depreciation Expense on the Statement of Comprehensive