What is the primary purpose of depreciation?

• A. Allocate cost of tangible assets over useful life
• B. Accrue funds for replacement
• C. Determine asset's current market value
• D. Increase net income

Answer: (A)

Depreciation serves to allocate the cost of a tangible asset across the periods in which it provides value. Since the asset helps generate revenue over several years, spreading its expense over that span aligns the cost with the benefits received in each period. This follows accrual accounting and the matching principle, ensuring expenses are recognized when the related economic activity occurs. It’s not about setting aside cash for future replacement, nor about showing the asset’s current market value, and it does not increase net income—depreciation reduces earnings because it records an expense for the period.