THE ANNUITY METHOD OF ESTIMATING DEPRECIATION.
In the past, charges have been leveled at the annuity method of estimating depreciation, some so serious as to have completely removed it from both formal and practical consideration. These contentions will be discussed in this paper, and in this process will be elucidated what is believed to be a more general annuity method than that ordinarily used. The criticisms with which this paper will be concerned are: 1) imputed interest on the fixed output asset is included in the cost of production; 2) each year's stream of revenues is assumed to be the same; 3) an arbitrary rate is used; 4) difficulty of application is too great. The belief regarding imputed interest arises from the contention that not only is the cost of the asset written off, but also interest on the asset. Because a rate is applied to the asset to show its growth during an accounting period as it approaches one period closer to its stream of net revenues, the suspicion is immediately amused that this must be interest. In order that the validity of this contention can be examined, investigation must first be made as to what rate is pertinent to the annuity method.
- DOI
- 10.2308/tar-7062678
- Volume
- 14 (4)
- Pages
- 424-429
- Language
- en
- Export
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