Capital Consumption:
National vs. Business Accounting Points of View

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This study was first published in International Statistical Institute in 1972, by Jawad M. Hashim when he was Minister of Planning in Iraq at that time.

Amortization industrial point of view of national accounts compared to that of commercial. In general, two groups of people are responsible for calculating depreciation:

  • Industrial accountants; and
  • Commercial accountants.

The first group considers depreciation as effective accounting staffing cut earnings by public and private enterprises, to take account of depreciation and obsolescence of fixed assets, and also charges for insurance against accidental damage.

For the second group, ie accountants, who consider the problem from an economic point of view, depreciation is the loss of value in current prices of tangible assets.

In other words, it is the current cost of replacing the loss of wealth due to the wear-obsolescence of physical assets. The various methods for determining the depreciation according to the concept adopted by the accounting trade are discussed. Each method leads to a different breakdown of the total expense in time and different values of these charges. With regard to the concept adopted by national accountants, there is unfortunately it is not sufficiently developed to permit a unique formula of calculating depreciation.

The purpose of this study is to discuss some practical problems inherent in determining the amortization, in order to fill the various gaps that exist, and indicate solutions that are consistent with the needs of accountants.

The study is divided into two parts: the first deals with the depreciation of its various aspects and effects of price changes on its calculation. The second part discusses the problems of obsolescence, payment of insurance charges and the effects of long life assets in determining the gross and net investment.