At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you:

Why is it that I am forced to recognize depreciation expense in my company's income statement when I know that I could sell many of my assets for more than I paid for them? I thought that the purpose of the balance sheet was to reflect the value of my business and that the purpose of the income statement was to report the net change in value or wealth of a company. It just doesn't make sense to penalize my profits when there hasn't been any loss in value from using the assets.

At the conclusion of the luncheon, you promised to send him a short explanation of the rationale for current depreciation practices.

Prepare a letter to Mr. Hopkins, potential new client, responding to his question and perceptions. Begin with a brief introductory paragraph that indicates you are responding to his inquiry. Use a separate short paragraph for each issue you address, and start each paragraph with a topic sentence. End the letter with a pleasant closing. Use a correct letter format with inside address, salutation, and complimentary closing.