The board of directors of San Antonio Parking Lot Company is reviewing the 19X8 annual report. A new board member-a physician with little business experience-questions the company accountant about the depreciation amounts. The physician wonders why depreciation expense has decreased from \(\$ 200,000\) in 19X6 to \(\$ 184,000\) in \(19 \mathrm{X} 7\) to \(\$ 172,000\) in \(19 \mathrm{X} 8\). 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?

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Write a paragraph or two to explain the concept of depreciation to the physician and to answer the physician's questions.