IDEAS home Printed from https://ideas.repec.org/p/arz/wpaper/eres2015_52.html
   My bibliography  Save this paper

Conceptual framework for measurement of asset depreciation on buildings

Author

Listed:
  • Kaia Kask

Abstract

Asset depreciation is an important issue in many economic decisions made either by private or public sector institutions in all times. For example, the methodology and measurement issues of asset depreciation are influencing capital budgeting decisions in corporate finance and also major capital expenditure decisions that concern public sector long-term investments.As the depreciable assets come in many forms, there is still large gaps in literature that need to be filled in order to develop comprehensive estimates of depreciation for tax and accounting purposes (Hulten 2008: 1). Also, as it is asserted by Diewert (2005), the accounting for the contribution of capital to production is more difficult than accounting for the contributions of labor or materials, because – when a reproducible capital input is purchased for use by a production unit at the beginning of an accounting period, it is not possible to simply charge the entire purchase cost to the period of purchase. Since the benefits of using the capital asset extend over more than one period, the initial purchase cost must be distributed somehow over the useful life of the asset. This is the fundamental problem of accounting (Diewert 2005: 480), which has been solved by the calculation of asset depreciation.The current literature about depreciation in general is very broad and well-researched and it may seem that everything in that field has been done already. Nevertheless, looking more thoroughly the overwhelming literature written about asset depreciation, the author of the current paper has found that there is a lack of systematic approach to the background of the topic with thorough theorization about the connections and links with other relevant problems, like capital expenditure, user cost of capital, asset price and asset rental price. Therefore, the aim of the current paper is to develop a systematic theoretical framework for a building asset depreciation concept that would integrally account all the mentioned co-factors, stemming from the fact that building asset does have some special features over other (durable) assets like vehicles and machinery. The paper also sets up a research question, whether at the long-run equilibrium level, the cost of capital used to discount the cash flows from the building asset, should equal at least the depreciation rate of the same asset?

Suggested Citation

  • Kaia Kask, 2015. "Conceptual framework for measurement of asset depreciation on buildings," ERES eres2015_52, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2015_52
    as

    Download full text from publisher

    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2015-52
    Download Restriction: no

    File URL: https://eres.architexturez.net/system/files/eres2015_52.content.pdf
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arz:wpaper:eres2015_52. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Architexturez Imprints (email available below). General contact details of provider: https://edirc.repec.org/data/eressea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.