The Application of the Matching Principle to Depreciation of Plant

question 73

Multiple Choice

The application of the matching principle to depreciation of plant and equipment can best be described as:

• A)The matching of the book value of an asset with its market value.
• B)Offsetting the revenue of an accounting period with the estimated decline in market value of plant and equipment during the accounting period.
• C)Offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period.
• D)The matching of the depreciation expense reported in the income statement for an accounting period with the accumulated depreciation reported in the balance sheet.

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Definitions:

Price Markup

The practice of setting the selling price of a product higher than its initial cost to achieve a profit margin.

Elastic Demand

A type of demand that responds significantly to changes in price, where a slight price change leads to a substantial change in the quantity demanded.

Marginal Cost

The cost increase associated with the creation of one additional unit of a good or service.

Profit Maximizing

The process by which a firm determines the price and output level that returns the greatest profit.