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Explain the purpose of depreciation charge in the statement of profit or loss?

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تم إضافة السؤال من قبل Frank Mwansa , ACCOUNTING LECTURER , FREELANCER
تاريخ النشر: 2022/05/17
Mahmoud Hotar
من قبل Mahmoud Hotar , Auditor , Ajiad Import & Export (Yarn-Fabrics)

The purpose of depreciation is to match the expense recognition for an asset to the revenue generated by that asset. This is called the matching principle, where revenues and expenses both appear in the income statement in the same reporting period, thereby giving the best view of how well a company has performed in a given reporting period.

 

The trouble with this matching concept is that there is only a tenuous connection between the generation of revenue and a specific asset. Under the tenets of constraint analysis, all of the assets of a company should be treated as a single system that generates a profit; thus, there is no way to link a specific fixed asset to specific revenue.

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