Decision Making on Depreciation for Old and New Building.

A. Deciding on Depreciation for Old and New Building. The Asset Builders Company owned one factory building with a net depreciated cost of $90,000. Machinery and equipment was carried at $120,000. Because of expanding business, it built a new building at a cost of $150,000 and installed $210,000 of equipment therein. During the next several years it put some new equipment into the old building and continued to operate both plants. Depreciation has been computed on a straight-line basis. Recently the company shut down the old plant because of lack of orders.

The sales manager proposes that the company should no longer take depreciation on the old building and machinery. He suggests that while the old plant is useful, it is not in use and is not wearing out. He also suggests that to take depreciation on it increases cost, overvalues inventory, and places the company in a poor competitive position to bid for business since its costs are high.

Required: A full discussion of this proposal.