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11 January, 16:38

The purpose of depreciation accounting is to:

A. Allocate a plant asset's cost, less its salvage value, to expense over the asset's useful life

B. Have a plant asset's book value equal its initial cost by the end of its useful life

C. Reflect changes in the current value of a plant asset over its useful life

D. Accumulate funds to replace a plant asset at the end of its useful life

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  1. 11 January, 19:16
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    A. Allocate a plant asset's cost, less its salvage value, to expense over the asset's useful life.

    Explanation:

    Depreciation is an accounting process, which permits to systematically determine and assign a portion of the original cost of a plant or equipment to an accounting period.

    This is, when a firm invests in an equipment that is supposed to last several years, its value is to prorate the cost or expense throughout those years, taking into account the number of years that the asset will be useful for the firm and its value at the end of its useful life (salvage or residual value).

    The part of the original cost that has not been depreciated yet represents the book value. At the end of the usefull life the book value is supposed to match the residual value or salvage value.

    Thus, the purpose of depreciation accounting is stated correctly by the first choice: A. Allocate a plant asset's cost, less its salvage value, to expense over the asset's useful life
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