DEPRECIATION VS. INFLATION.
This article points out briefly the aspect of the theoretical relationship between total depreciation allowances and the fixed property accounts. It is assumed that the assets are carried on the books at historical cost and at the end of their life cycle are to be replaced by similar assets having a much higher cost figure because of a sustained period of rising prices. The decision when to replace the asset is one for management to make. Obsolescence may have taken place as a result of technological improvements, and the asset should be retired even before the eight year period, or even at the end of five years. The asset, on the other hand, may be performing its task well and need not be replaced for several years after it becomes fully depreciated on the books. In the former case the depreciation charge has been understated and in the latter over-stated. Depreciation, whatever method may be applied, is nothing more than an estimate. Today, however, it is recommended as a conservative policy to write off the asset as quickly as possible because technological advances are being made at such a rapid rate that obsolescence is regarded as a more important factor than the physical character of the property.
- DOI
- 10.2308/tar-7095782
- Volume
- 36 (1)
- Pages
- 71-74
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref