Depreciation is relevant because it represents the expense of using a fixed asset over a period to generate revenue, which allows an accurate profit to be determined and assists business decision making. However, depreciation is not fully reliable because it involves estimates of an asset's residual value and useful life that cannot be verified with documentation and are based on assumptions rather than facts. While depreciation provides useful information, its reliability is limited by the estimates and assumptions that go into calculating it.

1. 13.6
DEPRECIATION: RELEVANCE
VS. RELIABILITY

2. © Michael Allison. Author’s permission required for external use.
 There is a conflict between relevance and reliability
13.6 DEPRECIATION: RELEVANCE
VS. RELIABILITY
Relevant:
• Depreciation is relevant as
it represents the expense
(amount used) of the asset
this period in order to
generate revenue
• This enables an accurate
profit to be determined
• This assists the decision-
making of the business
Depreciation is…
Reliable:
• Depreciation is not reliable
because it involves
estimates to be made of:
• Residual value
• Useful life
• These are guesses which
can’t be verified with a
source document
Depreciation is NOT…

3. © Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
SQ12 X
Ex13.4 X
Ex13.5 X
Ex13.6 X
Ex13.7 X
Ex13.8 X