[OPE] Kliman on depreciation

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Sun Oct 18 2009 - 16:29:23 EDT

While I think of it. Kliman's discussion of depreciation is pretty
interesting, but it leaves out two important things which should be
explicitly mentioned. Firstly, the depreciation allowance which businesses
actually claim as revenue is based on a tax schedule for depreciation
allowances, and not primarily on real wear and tear. Secondly, as a
corollary, BEA then recalculates "economic depreciation rates" for fixed
assets held, which are based on the observed prices of fixed assets at
various ages, up to scrap value.

This NIPA procedure therefore does take into account moral obsolescence,
since a second-hand fixed asset will be implicitly devalued according to the
latest technological developments and scrap rates in the relevant asset
class. But more importantly, it means that real business income from the
depreciation allowance differs from the economic depreciation estimated and
shown in the account. If then you base yourself on this economic
depreciation, you are already dealing with an imputation which is at
variance from the true flow value. Question now is, if the economic
depreciation shown in the account is lower or higher than the actual tax
allowance charged in reality, what happens to the differential? It gets even
more complicated actually, since the published company balance sheet differs
from the balance sheet for tax purposes.

Kliman argues that realised total profit will be lower than total surplus
value produced because of the implicit deduction of moral obsolescence,
which implies that part of official depreciation is in reality an element of
surplus value. But now everything depends on how the total net output is
itself calculated.

In the account, intermediate consumption is deducted from gross output to
get the net output. Then you can deduct employee compensation, net indirect
taxes etc. to get gross operating surplus (gross profit), the residual item
of the account, which you can then net of depreciation to obtain net
operating surplus (=gross profit net of depreciation).

But in reality I don't think this is how the totals are arrived at, and
thus, I would question first of all, whether a total net output figure in
reality exists at all, as a reference value, prior to compiling its
components, or whether in fact the net output figure is itself created by
adding together its components - so that a reconciliation of the three
measures of net output (income, expenditure and output value) is only
engineered aposteriori.

To complicate the picture further, in enterprise surveys the statistician
often asks the business to supply accounting data which is already in
conformity with the national accounting concepts for the components of value
added - which assumes that the national accounting concepts are more "real"
than the actual revenues and expenditures of the enterprise; certain flows
of income and expenditure transactions are ignored because they are
considered unrelated to the concept of production. All this makes the total
gross value added a highly "theoretical" concept.


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Received on Sun Oct 18 16:31:10 2009

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