Perhaps of all the expense accruals that financial accounting requires, the most misunderstood and criticized is the provision for depreciation expense on income statements. From 2000 to 2008 in much of the world there was significant appreciation in the value of PPE. Managers and financial analysts ridiculed financial statements and financial accounting for ignoring the increase in value of PPE by continuing to record depreciation expense and reducing the value of PPE on balance sheets.
Required:
Identify and discuss three reasons why depreciation expense is recorded, even during times of PPE price increases.