Due to inflation or rather continued inflation, a distortion creeps into the working of the Matching Principle. Revenue is earned according to present day prices but some of the costs, chiefly depreciation and also cost of materials consumed, may be out of date. If a machine was purchased in 2005-06 for Rs 10, 00,000 with an estimated life of 10 years, the depreciation may be Rs 1, 00,000 per annum and charged to the Profit and Loss Account at that figure even in 2011-2012....example is If prices since 2005-06 have gone up 214 times, the replacement cost of the machine may be Rs 25 lakh and the proper depreciation will be Rs 2, 50,000. To charge Rs 1, 00,000 is, therefore, on the face of it, giving a distorted picture. This is also the case when goods purchased are sold or raw materials are converted in finished goods after a lapse of time. This is partly the problem of accounting for inflation but it does constitute an important limitation of the matching principle.