Accession Number:

AD0688843

Title:

PROBABILISTIC DEPRECIATION AND ITS IMPLICATIONS FOR GROUP DEPRECIATION,

Descriptive Note:

Research rept.,

Corporate Author:

CARNEGIE-MELLON UNIV PITTSBURGH PA MANAGEMENT SCIENCES RESEARCH GROUP

Personal Author(s):

Report Date:

1968-12-01

Pagination or Media Count:

38.0

Abstract:

Conventional depreciation methods treat the service life of an asset as a given constant. Where there is some uncertainty as to the actual service life, an average expected value is used. In this paper, we consider an asset whose service life is a random variable with a known distribution. We show that whether or not accelerated methods are used, conventional depreciation methods generally result in underdepreciation in earlier periods of the assets life compared to a proposed method which makes explicit use of the underlying distribution. The use of parametric distributions to approximate the actual service life distribution is discussed and some empirical evidence presented The application of the proposed method of group depreciation, is considered and it is shown that conventional methods will typically result in underdepreciation throughout the service life of the items in the group. Author

Subject Categories:

  • Administration and Management
  • Economics and Cost Analysis

Distribution Statement:

APPROVED FOR PUBLIC RELEASE