(Learning Objective 2: Explaining the concept of depreciation) The board of directors of Gemstar Instruments is having its quarterly meeting. Accounting policies are on the agenda, and depreciation is being discussed. A new board member has some strong opinions. Jeffrey Hatton, an environmental engineer, argues that depreciation must be coupled with a fund to replace company assets. Otherwise, there is no substance to depreciation, he argues. He also challenges the 3 year estimated life over which Gemstar Instruments is depreciating company computers. He notes that the computers will last at least 5 years. Hatton argues for depreciating computers over 5 years instead of 3.
Required
Write a paragraph or 2 to explain the accounting concept of depreciation to Jeffrey Hatton and to answer his arguments.