The application of the matching principle to depreciation of plant and equipment can best be described as:
A)The matching of the book value of an asset with its market value.
B)Offsetting the revenue of an accounting period with the estimated decline in market value of plant and equipment during the accounting period.
C)Offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period.
D)The matching of the depreciation expense reported in the income statement for an accounting period with the accumulated depreciation reported in the balance sheet.

Question

Quizplus · Accepted Answer

The matching principle requires that expenses be recognized in the same period as the revenues they helped to generate. Depreciation is the allocation of the cost of a plant or equipment over its useful life, and this cost is considered an expense. Therefore, the matching principle requires that the expense of depreciation be recognized in the same period as the revenue generated by the use of the plant or equipment. Option C correctly describes the application of the matching principle to depreciation, as it involves offsetting the revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period.

The Application of the Matching Principle to Depreciation of Plant