SEQUENTIAL MODELS IN PROBABILISTIC DEPRECIATION
CARNEGIE-MELLON UNIV PITTSBURGH PA MANAGEMENT SCIENCES RESEARCH GROUP
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Probabilistic depreciation is a method of determining the proper depreciation charge in each year of an assets service life, when the service life is a random variable with known distribution. The paper discusses how the service life distribution is modified as more information is obtained about the actual lifetime of the asset. The problem of determining the proper amount to be charged each year to depreciation while at the same time maintaining the proper balance in the accumulated depreciation account is considered. The analysis is done both for a single asset case and for group depreciation. A final section discusses the use of Bayesian analysis for estimating the particular form of the service life distribution while the assets are in service.
- Administration and Management
- Economics and Cost Analysis
- Operations Research