During a company audit, the management argues with the auditor that machine has been well maintained hence there is no need for charging depreciation on it. Whether the auditor should:

Solution (By Examveda Team)

Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. It represents the reduction in value of a fixed asset due to wear and tear, passage of time, or obsolescence.

Even if a machine is well maintained, its value still decreases over time because maintenance only preserves its working condition; it does not prevent loss of value due to usage and aging.

The Companies Act and Generally Accepted Accounting Principles (GAAP) mandate that depreciation must be charged on all fixed assets except land (unless impaired).

If management refuses to charge depreciation, it would lead to an overstatement of assets and profits, thereby misrepresenting the company’s true financial position.

Therefore, the auditor should reject the management’s argument and insist that depreciation be charged as per accounting standards.

Hence, the correct answer is Option C: Reject it.