P7-73B. (Learning Objective 2: Explaining the concept of depreciation) The board of directors of Looper Structures, Inc., is reviewing the 20X6 annual report. A new board member—

a wealthy man with little business experience—questions the company accountant about the depreciation amounts. The new board member wonders why depreciation expense has decreased from €200,000 in 20X4 to €184,000 in 20X5 to €176,000 in 20X6. He states that he could understand the decreasing annual amounts if the company had been disposing of properties each year, but that has not occurred. Further, he notes that growth in the city is increasing the values of company properties. Why is the company recording depreciation when the property values are increasing?