The board of directors of the Canadian Red Cross is having its regular quarterly meeting. Accounting policies are on the agenda, and depreciation is being discussed. A new board member, a social worker, has some strong opinions about two aspects of depreciation policy.
The new board member argues that depreciation must be coupled with a fund to replace company assets. Otherwise, there is no substance to depreciation, he argues. He also challenges the three-year estimated life over which the Canadian Red Cross is depreciating association computers. He notes that the computers will last much longer and should be depreciated over at least 10 years.
Requirement
Write a paragraph or two to explain the concept of depreciation to the new board member and to answer his arguments.