Depreciation in local government budgeting serves what purpose?

• A. Depreciation accelerates cash outflows during asset life.
• B. Depreciation allocates asset cost over its useful life, informing replacement planning.
• C. Depreciation has no impact on budgeting.
• D. Depreciation is used only for tax reporting.

Answer: (B)

Depreciation in budgeting is about allocating the cost of a fixed asset over its useful life so that each year's budget reflects the portion of the asset being used to provide services. In local government, this helps plan for replacement and sustain services by signaling how much should be set aside over time to replace aging assets. Because depreciation is a non-cash charge, it doesn’t directly change cash in the year it’s recorded, but it informs long-range capital planning and asset management by indicating future funding needs. It also supports decisions on funding and debt to ensure assets are replaced when necessary. The other statements don’t fit because depreciation does have budgeting relevance and is not merely for tax reporting, nor does it accelerate cash outlays.