From: glevy@PRATT.EDU
Date: Mon Apr 02 2007 - 18:30:26 EDT
> In practice one is reliant upon the judgement of accountants > in quoting figures for capital depreciation. Hi Paul: It's not an accounting issue: how can accountants reasonably predict the rate of moral depreciation? It's true that there may be certain accounting conventions, e.g. they may estimate -- based on *past* rates of moral depreciation -- that computers will depreciate morally over a 3 year period of time. Technological breakthroughs, though, may come along and shred whatever depreciation schedules the accountants have come up with. You are right, though: firms come to rely on the expertise and judgment of the accounting staff. Even the best accountants, though, can not reliably predict the rate of technological obsolescence: all they can do is make heroic assumptions (such as assuming that trends for moral depreciation from the past will continue into the future) and then wait and see whether their guesstimates are shown to be on the mark or way off target ex post. For the firms it's a gamble and the accountants are the odds-makers. Hi Rhodus, Hic Salta. In solidarity, Jerry
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