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Depreciation Need Not Be Arbitrary
journal contribution
posted on 2023-05-18, 10:09 authored by Lane, J, Willett, RJFollowing Thomas (1969, 1974) the depreciation adjustment charged against accounting earnings is nowadays commonly presumed to be entirely arbitrary when it is viewed from a measurement perspective. This paper develops a statistical interpretation of accounting measurement to show that the depreciation calculation need not necessarily be viewed as incorrigible in Thomas's sense. A probability modelling approach is adopted to illustrate how the depreciation adjustment can be used to smooth accounting earnings over time. Depreciation is thus shown to have potentially useful estimation properties. The results have obvious policy implications regarding the objectives that depreciation and other accounting allocations might serve. They also have a bearing on fundamental questions regarding the nature of accounting measurement.
History
Publication title
Accounting and Business ResearchVolume
27Pagination
179--194ISSN
0001-4788Department/School
TSBEPublisher
RoutledgePlace of publication
United KingdomRights statement
Copyright 1997 RoutledgeRepository Status
- Restricted