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A COMPARISON OF DEPRECIATION METHODS UNDER CURRENT COST ACCOUNTING: A COMMENT

A COMPARISON OF DEPRECIATION METHODS UNDER CURRENT COST ACCOUNTING: A COMMENT A COMPARISON OF DEPRECIATION METHODS UNDER CURRENT COST ACCOUNTING: A COMMENT ROGER ROSE Bureuu of Agricultural Economics Introduction This note is intended to clarify some fundamental points which were obscured in Davey’s (1979) study of depreciation. In the first case it is pointed out that, while Davey’s estimates of the rate of physical decline may be reasonable, his method of calculating the money value of depreciation is not. Generally applicable depreciation estimates can be derived from Davey’s estimate of R, but not by using his equations. The use of a single estimate of depreciation for years with different rates of price change is also invalid. A further point concerns the difference between market values for sur- viving machines of a particular vintage and the average value of all of that vintage. It is the average value, including allowance for machines the proportion which have ceased operation, which is of relevance for tax purposes. Use of unadjusted market values would lead to underestimates of the average rate of decline for older machines. Finally, the manner in which the influence of the investment allowance was taken into account was not described. Accounting for such influence involves measurement of interaction between distributions http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Australian Journal of Agricultural Resource Economics Wiley

A COMPARISON OF DEPRECIATION METHODS UNDER CURRENT COST ACCOUNTING: A COMMENT

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References (2)

Publisher
Wiley
Copyright
Copyright © 1980 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1364-985X
eISSN
1467-8489
DOI
10.1111/j.1467-8489.1980.tb00371.x
Publisher site
See Article on Publisher Site

Abstract

A COMPARISON OF DEPRECIATION METHODS UNDER CURRENT COST ACCOUNTING: A COMMENT ROGER ROSE Bureuu of Agricultural Economics Introduction This note is intended to clarify some fundamental points which were obscured in Davey’s (1979) study of depreciation. In the first case it is pointed out that, while Davey’s estimates of the rate of physical decline may be reasonable, his method of calculating the money value of depreciation is not. Generally applicable depreciation estimates can be derived from Davey’s estimate of R, but not by using his equations. The use of a single estimate of depreciation for years with different rates of price change is also invalid. A further point concerns the difference between market values for sur- viving machines of a particular vintage and the average value of all of that vintage. It is the average value, including allowance for machines the proportion which have ceased operation, which is of relevance for tax purposes. Use of unadjusted market values would lead to underestimates of the average rate of decline for older machines. Finally, the manner in which the influence of the investment allowance was taken into account was not described. Accounting for such influence involves measurement of interaction between distributions

Journal

The Australian Journal of Agricultural Resource Economics – Wiley

Published: Apr 1, 1980

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