The Accounting Review Vol. 36 No. 4 1961
DEPRECIABLE ASSETS--TIMING OF EXPENSE RECOGNITION.
Abstract
It is generally agreed that depreciation accounting attempts to allocate the cost of an asset to expense so that each year of the asset's useful life bears a reasonable portion of the expense of using the asset. It is the argument of this article that the choice of the method of cost allocation should not be left to whim or chance, but rather should be the result of a logical theory of depreciation. To implement the theory of depreciation, it's necessary to view the purchase of a long-lived asset as the acquisition of a series of revenue producing services rather than the purchase of a physical unit. It can be assumed that two of the most important measures of performance used by investors, management, social scientists, and others are the income figure, and the return on investment. Conventional depreciation accounting procedures generally make both of these computational subject to severe criticisms. The depreciation charge is based on the expectations at the time of purchase. If after acquisition management changes the method of operation, or economic conditions are not as forecasted, the depreciation schedule is not changed. However, the reported income and return on investment will differ from the planned figures, thus they will indicate when there is a need for investigation.
- DOI
- 10.2308/tar-7097622
- Volume
- 36
- Issue
- 4
- Pages
- 613-618
- Language
- en
- Sources
- openalex crossref