Which statement is correct regarding depreciation?

• A. Depreciation is recorded in the General Fund.
• B. No depreciation can be recorded in any governmental fund, but depreciation expense must be recorded in the governmental activities accounts.
• C. Depreciation is recorded in the government-wide statements only.
• D. Depreciation is never recorded.

Answer: (B)

Depreciation is the allocation of the cost of capital assets over their useful lives, and how it shows up depends on the financial statement type. Governmental funds use the modified accrual basis focused on current resources, so they do not record depreciation. In contrast, the government-wide statements use accrual accounting and carry capital assets, so depreciation expense is recognized for the governmental activities. That’s why the statement saying no depreciation is recorded in any governmental fund, but depreciation expense must be recorded in the government-wide (governmental activities) statements is correct. The other views aren’t right because depreciation isn’t shown in governmental funds, and it is indeed shown in the government-wide statements for governmental activities.