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Optimal smoothing of account earnings
journal contribution
posted on 2023-05-18, 10:08 authored by Lane, J, Willett, RJAccountants seeking to estimate the profitability of a firm via the calculation of earnings utilize information about the number and current lifespan of unfinished activities by incorporating a smoothing device—depreciation—into their calculations. This paper considers a firm in steady state, carrying out a large number of similar activities with random starts and completion dates. By developing a stochastic model for the firm's activities, a difference equation for the minimum-variance smoothing function is obtained. This can be solved explicitly in the case of a periodic Poisson process of start times and independent exponential durations and is a variant of declining-balance depreciation.
History
Publication title
IMA Journal of Mathematics Applied in Business & IndustryVolume
10Pagination
1-14ISSN
1471-678XDepartment/School
TSBEPublisher
Oxford University PressPlace of publication
United KingdomRights statement
Copyright 1999 Oxford University PressRepository Status
- Restricted