In most companies, there is a continuous usage of machinery and other equipments as a part of its production process. The use of the production assets inevitably results in wear and tear / or obsolescence. Machines do not have an infinite life and are rapidly over taken by efficient technologies. The company should anticipate the renewal of its productive apparatus, by using the concept of depreciation.
[...] The economic depreciation is interested in the market value of an asset for sustainable production that varies over time. The economic depreciation of the crane over a year will equal the market price of the input at the beginning of the year minus the market price of the same factor at the end of the year. Indeed, the crane could be sold at the beginning of the year at current market price. The opportunity cost is the practice of keeping the crane at the amount that was lost by not selling it. [...]
[...] The reducing balance method of depreciation (the depreciation expense is a fraction of the decreasing value of acquisition) is more realistic when there is a market opportunity, where the company finds that the depreciation is faster at the beginning and end of the asset's life. Depreciation is traditionally calculated on the purchase value of durable goods production. The inflationary replacement value tends to be higher and the result is that the depreciation allowances are inadequate. The depreciation in national accounts In general, an aggregate is gross when it includes depreciation and is net when it is cut. [...]
APA Style reference
For your bibliographyOnline reading
with our online readerContent validated
by our reading committee
