Depreciation Question:

Download Questions PDF

According to the matching principle of accounting, the costs incurred in the accounting year should be matched with the revenue or income earned during the same accounting year. Thus, it is necessary to spread the cost of fixed asset less scrap or realizable value after the useful life of the fixed asset is over and this process of ascertain the same is called depreciation accounting. Thus, depreciation account is needed for mainly two purposes:

To ascertain due profits and to represent the value of the fixed asset at its unexpired cost i.e book value of the asset less depreciation.