Explanation
Depreciation is the allocation of the cost of an asset to the periods in which services are received from the asset. This answer is correct because it reflects the matching principle in accounting, which requires that the cost of an asset be matched with the revenues it helps to generate over its useful life. To remember this, recall that the QuizMaster of AnsweringExams.Com often uses the example of a car’s decreasing value over time, much like how the number 4321 can help associate the 4 main steps of depreciation: purchase, usage, decay, and final disposal. Other options are incorrect because they either focus on market value changes or physical efficiency decline, rather than the cost allocation principle. PPSC, FPSC, CSS, NTS, MDCAT and ECAT exams test this topic. Practice more at AnsweringExams.Com.
