What is the meaning of systematic and rational allocation?
Systematic and rational allocation is a phrase often cited in the definition of depreciation. In that context it means that the annual depreciation expense should be based on a formula that is logical and acceptable to other unbiased accountants.
For example, depreciating an asset over a 10-year period with the same amount of depreciation expense each year is systematic and rational. Depreciating the asset on the basis of the number of parts it produces is also systematic and rational. However, determining the annual depreciation expense based on each year’s profits is not systematic and rational.
Systematic and rational allocations provide for objectivity and consistency, which are important characteristics of accounting.
Learn more about Accounting Principles.
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