publication . Article . 1983

Distortions Imposed By Inflation on Historical-Cost Depreciation

Boris E. Bravo-Ureta;
Open Access
  • Published: 01 Jan 1983
Abstract
<jats:p>The use of historical-cost depreciation in periods of persistent inflation decreases the present value of depreciation deductions, thus understating the true economic cost of capital and increasing the real after-tax rate of return required by potential investors. Efforts to correct these problems by adopting depreciation methods that allow for artificially short recovery periods or accelerated rates do not provide an adequate solution. Distortions imposed by inflation on historical-cost depreciation can be adequately corrected by indexing the historical-cost basis.</jats:p>
Subjects
free text keywords: Agricultural Finance,, Consumption of fixed capital, Rate of return, Operating income before depreciation and amortization, Inflation, media_common.quotation_subject, media_common, Economics, Historical cost, Cost basis, Depreciation, Depreciation (economics), Monetary economics
Related Organizations

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