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Paper eres2015_52:
Conceptual framework for measurement of asset depreciation on buildings

id eres2015_52
authors Kask, Kaia
year 2015
title Conceptual framework for measurement of asset depreciation on buildings
source 22nd Annual European Real Estate Society Conference in Istanbul, Turkey
summary 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?_
keywords asset depreciation , user cost of capital, capital expenditure, asset rental price, building maintenance
series ERES:conference
type paper session
content file.ppt (512,225 bytes)
discussion No discussions. Post discussion ...
session Asset, Property & Facility Management
last changed 2015/07/08 18:06
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