Task:
The managements of two different companies argue that because of specific conditions in their companies, recording depreciation expense should be suspended for 2008. Evaluate carefully their arguments.
Q1. The president of Guzman Co. recommends that no depreciation be recorded for 2008 because the depreciation rate is 5% per year, and price indexes show that prices during the year have risen by more than this figure.
Q2. The policy of Liebnitz Co. is to recondition its building and equipment each year so that they are maintained in perfect repair. In view of the extensive periodic costs incurred in 2008, officials of the company believe that the need for recognizing depreciation is eliminated.