Depreciation is a way accountants try to create a monetary representation of the value of a tangible asset over time based on the way that one assumes the asset to have its value be consumed over time.
Imagine, for example, that a city builds a bridge that improves transportation links and trade. This bridge makes a positive contribution to GDP. The bridge doesn't just remain in perfect shape forever, though. It has a fixed lifespan and requires ongoing repairs. Many tangible assets depreciate, including real estate, factories, tools, and IT equipment. Depreciation, therefore, acts as a form of net loss.
Unless one factors in depreciation, politicians and executives can make themselves look good by deferring maintenance and infrastructure work to inflate GDP or value artificially. A business using 10-year-old computers might have more cash on hand than a company that spent money to upgrade its computers, but realistically, a company using obsolete technology will need to upgrade, and the decline in value of the obsolete IT is actually a form of liability; depreciation is a way of measuring this.
http://staffwww.fullcoll.edu/fchan/macro/2gdp_computation.htm
https://www.investopedia.com/terms/d/depreciation.asp
Monday, February 20, 2017
What is depreciation and why is it included in GDP?
Subscribe to:
Post Comments (Atom)
Why is the fact that the Americans are helping the Russians important?
In the late author Tom Clancy’s first novel, The Hunt for Red October, the assistance rendered to the Russians by the United States is impor...
-
There are a plethora of rules that Jonas and the other citizens must follow. Again, page numbers will vary given the edition of the book tha...
-
The only example of simile in "The Lottery"—and a particularly weak one at that—is when Mrs. Hutchinson taps Mrs. Delacroix on the...
-
A good thesis statement presents a claim (an interpretive stance on a story that can be defended using textual evidence) and is a position w...
-
The given two points of the exponential function are (2,24) and (3,144). To determine the exponential function y=ab^x plug-in the given x an...
-
What does the hot air balloon symbolize? To the Assad son who buys the hot air balloon, it symbolizes a kind of whimsy that he can afford. B...
-
The play Duchess of Malfi is named after the character and real life historical tragic figure of Duchess of Malfi who was the regent of the ...
-
Allie’s baseball mitt is extremely important to Holden in The Catcher in the Rye. It is a symbol of Allie since it was important to his brot...
No comments:
Post a Comment