Net investment
and
The concept of Depreciation.
Gross investment:- Expenditure on the purchase of fixed assets during the accounting year plus Expenditure on the inventory stock during the accounting year.
# point to remamber:- unsold stock of Goods with the producers is considered as purchase made by the producer themselves accordingly. It is a part of total expenditure or the inventory stock.
Net investment = Gross investment- Depreciation.
"Net investment implies net addition to the stock of capital. It enhances production capacity of the producers."
Description (Consumption of fixed capital)
(1) wear and tear charges.
(2) Normal rate of accidental damage.
(3) Expected or forseen absolance.
- Natural calamities like earthquake, price, etc.
- Fall in the margin value of assets when twice is economic reasons.
Unexpected absolance:- It is called capital loss of Depreciation or depreciation reserve fund.
Depreciation Reserve Fund:-
Example:- if a machinery purchased for R.S.10,00,000 and the expected life time is 10 years then annual provision for fund to replace then after 10 years = 10,00,000% = 10,00,000 .
This is called Depreciation Reserve Fund.
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