Distortions Imposed By Inflation on Historical-Cost Depreciation

Boris Bravo-Ureta

Journal of the Northeastern Agricultural Economics Council, 1983, vol. 12, issue 01, 8

Abstract: 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.

Keywords: Agricultural; Finance (search for similar items in EconPapers)
Date: 1983
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nareaj:159501

DOI: 10.22004/ag.econ.159501

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