Depreciation Concepts
Response to the following problem:
Prepare a short report that evaluates each of the following statements separately:
1. "Since our plant was shut down for part of the year, we will not depreciate it. Depreciating it for the full year would increase our costs and overstate the inventory."
2. "I think we should have increasing depreciation each period because it will increase the funds recovered near the end of the asset's life when maintenance costs are high and we will need to replace the asset. Also, I think tax rates will be higher toward the end of the asset's life, so we will be better off to have larger depreciation then."