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Optimal smoothing of account earnings

Citation

Lane, J and Willett, RJ, Optimal smoothing of account earnings, IMA Journal of Mathematics Applied in Business & Industry, 10, (1) pp. 1-14. ISSN 1471-678X (1999) [Refereed Article]

Copyright Statement

Copyright 1999 Oxford University Press

DOI: doi:10.1093/imaman/10.1.1

Abstract

Accountants 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.

Item Details

Item Type:Refereed Article
Keywords:Stochastic model, accountancy, periodic Poisson process, optimal smoothing, depreciation, declining balance
Research Division:Mathematical Sciences
Research Group:Statistics
Research Field:Applied Statistics
Objective Division:Economic Framework
Objective Group:Measurement Standards and Calibration Services
Objective Field:Service Industries Standards and Calibrations
Author:Willett, RJ (Professor Roger Willett)
ID Code:100530
Year Published:1999
Deposited By:Tasmanian School of Business and Economics
Deposited On:2015-05-19
Last Modified:2016-10-18
Downloads:0

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