The board of directors of Special Services is reviewing its 2014 annual report. A new board member-a nurse with little business experience-questions the accountant about the depreciation amounts. The nurse wonders why depreciation expense has decreased from $200,000 in 2012 to $184,000 in 2013 to $172,000 in 2014. She states that she could understand the decreasing annual amounts if the company had been disposing of buildings each year, but that has not occurred. Further, she notes that growth in the city is increasing the values of company buildings. Why is the company recording depreciation when the property values are increasing?
Requirement
Write a paragraph or two to explain the concept of depreciation to the nurse and to answer her questions.