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An index of growth due to depreciation*

Richard P. Brief; Hector R. Anton
Contemporary Accounting Research 1987 3(2), 394-407
While factors such as inflation, technological change and growth often have been discussed in connection with the adequacy of provisions for depreciation under a historical cost model, there is another dimension to the capital maintenance problem and it concerns the multiplier effect of depreciation. When an amount equal to depreciation is reinvested, a firm's productive capacity tends to increase. Reinvestment of depreciation also increases a firm's financial capital if book depreciation is more accelerated than economic depreciation. Based on a model developed by Ijiri (1967), this paper derives an index of this growth due to depreciation. The index estimates a bias in conventional depreciation methods that has been overlooked in the literature on the subject. This bias has implications for inflation accounting because if conventional depreciation methods have a built‐in growth bias, adjustments for inflation may be a type of double counting. A second implication mentioned concerns the bias in accounting rates of return. Résumé. Bien que des facteurs tels l'inflation, les changements technologiques et la croissance ont souvent été examinés à propos de la pertinence des provisions pour dépréciation dans le cadre du modèle au coût historique, un autre aspect du problème de préservation du capital subsiste et il concerne l'effet multiplicateur de l'amortissement. Lorsqu'un montant égal à l'amortissement est réinvesti, la capacité d'exploitation de la firme a tendance à s'accroître. Le réinvestissement de l'amortissement fait aussi augmenter le capital de la firme si l'amortissement comptable est plus accéléré que la dépréciation économique. En se basant sur un modèle élaboré par Ijiri (1967), cet article dérive un indice de cette croissance attribuable à l'amortissement. L'indice estime un biais des méthodes traditionnelles, qui a été négligé dans les recherches consacrées au sujet. Ce biais a des implications en comptabilité des effets de l'inflation, car si les méthodes d'amortissement traditionnelles comportent implicitement ce biais de croissance, les redressements relatifs à l'inflation peuvent être assimilés à un double comptage. Une deuxième conséquence est signalée, soit le biais relatif aux taux de rendement comptable.

New Books: An Annotated Listing.

Richard P. Brief; Julianne Rappa
The Accounting Review 1987 62(2), 418-422
The article presents a list of names of books received by the editor but not published in the April 1987 issue of the journal "The Accounting Review." The names of books include "Corporate Financial Reporting in a Competitive Economy," by Herman W. Bevis, "Management Controls: New Directions in Basic Research," edited by Charles P. Bonini, Robert K. Jaedicke, and Harvey M. Wagner, "Corporate Financial Reporting and Analysis in the Early 1900s," edited by Richard P. Brief, "Estimating the Economic Rate of Return From Accounting Data," edited by Richard P. Brief, "Ethical Standards of the Accounting Profession," edited by John L. Carey and William O. Doherty, "Issues in Finance," edited by Michael Firth and Simon M. Keane, "Controlling and Auditing Small Computer Systems," by S.J. Gaston, "The British Accounting Association Research Register 1986," edited by R.H. Gray, "Research in Accounting Measurement," edited by Robert K. Jaedicke, Yuji Ijiri and Oswald Nielsen, "Taxation of Securities, Commodities, and Options," by Andrea S. Kramer, and "The Accounting Profession and the Middle Market," edited by Belverd E. Needles Jr.