RE: [OPE] replacement cost and historical cost (again)

From: Philip Dunn <>
Date: Thu Sep 03 2009 - 15:45:30 EDT

On Thu, 2009-09-03 at 00:14 +0100, GERALD LEVY wrote:

> Hi Phil:
> And how would you numerically illustrate an unanticipated rate of
> depreciation due to technological change creating new, more advanced
> and qualitatively different forms of constant fixed capital?
> In solidarity, Jerry

Easy peasy.

Suppose a firm buys a machine and anticipates it will last for five
years. Suppose revenue is anticipated to flat for the five years. Then
depreciation would be set at 20% per annum. However, a new, much
improved machine appears on the market after four years. The firm
decides to scrap the old machine and buy the new one. Retrospective
depreciation is now 25% per annum. The account of the four prior years
must be adjusted, reducing value added and profit.

Moral deprecations is prior period adjustment.

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Received on Thu Sep 3 15:48:33 2009

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