1. Distinguish among depreciation, depletion, and amortization.
2. Identify the factors that are relevant in determining the annual depreciation charge, and explain whether these factors are determined objectively or whether they are based on judgment.
3. Some believe that accounting depreciation measures the decline in the value of fixed assets. Do you agree? Explain.
4. Explain how estimation of service lives can result in unrealistically high carrying values for fixed assets.
5. The plant manager of a manufacturing firm suggested in a conference of the company’s executives that accountants should speed up depreciation on the machinery in the finishing department because improvements were rapidly making those machines obsolete, and a depreciation fund big enough to cover their replacement is needed. Discuss the accounting concept of depreciation and the effect on a business concern of the depreciation recorded for plant assets, paying particular attention to the issues raised by the plant manager.