Depreciation is a process by which:
A) replacement funds are accumulated for plant and equipment.
B) the decline in market value of plant and equipment is determined and recorded.
C) the cost of plant and equipment is allocated to expense over its useful life.
D) the difference between current market value and historical cost of plant and equipment is recorded.

Question

Quizplus · Accepted Answer

Depreciation is the process of allocating the cost of plant and equipment to expense over its useful life. This recognises that the asset gradually loses value over time as it is used and becomes obsolete. Choice A is incorrect as it refers to a funding process, not accounting treatment. Choice B is also incorrect as it refers to changes in market value, which is not necessarily related to the asset's useful life. Choice D is incorrect as it only records the difference in value, not explaining how the cost of the asset is allocated.

Depreciation Is a Process by Which