Question 4 15 Marks

The board of directors of Telmot Instruments is having its Quarterly meeting. Accounting policies are on the agenda, depreciation is being discussed. A new Board member has some strong opinions. He is an environmental Engineer and argues that depreciation must be coupled with a fund to replace company assets, otherwise there is no substance to depreciation. He also challenges the 3-year estimated useful life the company is using to depreciate company computers. He notes that the computers will last 5 years. He argues for depreciating over 5 years instead of 3 years.

Required: Explain the concept of depreciation and what is taken into consideration when determining estimated useful life of an asset