Problem:
Comment on the statement following, focusing on the relation between asset values on the balance sheet to market values of assets. Please assist with getting me started.
A manager complained about the amount of depreciation charged on the plant for which he was responsible: "The market value of my plant just continues to increase, yet I am hit with large depreciation charges on my income statement and the value of my plant and equipment on the balance sheet goes down each year. This doesn't seem fair."
Comment on this statement, focusing on the relation between asset values on the balance sheet to market values of assets. Do not simply "define" depreciation" and "explain it to the manager! The scenario suggests that assets owned might increase in market value (for example, the market value of my house has increased substantially since purchase) but always decrease in "balance sheet value."