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n the charges against earnings to write off the cost, less salvage value, of an asset over its estimated useful life. It is a bookkeeping entry and does not represent any cash outlay, nor are any funds earmarked for the purpose. There are three classic methods of applying depreciation: straight line, sum of the year's digits, and double declining balance.


the decline in value over time of capital items.
References in periodicals archive ?
An important empirical implication of equation (3a) is: Any empirical method that is appropriate for estimating economic depreciation is also appropriate for estimating capital consumption in economic accounts, for economic depreciation and capital consumption are identical.
Denison [1972] argued that the standard definition of economic depreciation, which corresponds to equation (3a), does not provide the appropriate measure of capital consumption in economic accounts because, he maintained, capital consumption should be allocated to production over the capital good's lifetime in proportion to capital used up in production.
Where there is no decay, capital used up consists only of exhaustions; because the present value of lightbulb exhaustions equals the loss in value of a one-period older bulb, this loss in value equals capital consumption, and is also exactly the definition of economic depreciation.
Capital consumption is the appropriate one-period adjustment for a wealth measure, and therefore appropriately determines the difference between GDP and net domestic product.
Suppose new investment offsets the value of light-bulb exhaustions (as required by the economic accounts definition of capital consumption, when there is no decay).
Accordingly, the argument goes, capital consumption should also be invariant to changes in the interest rate.
Denison's argument is, properly, that capital used up in production should be independent of interest rate changes, not that capital consumption should be independent of interest rates.
What should be set aside in the current period as the value of capital consumption, so that Hicksian income is sustained?
But if this were done, the amount set aside would exceed at the end of ten periods the amount necessary to purchase a new stock of bulbs (because of interest earnings on the invested capital consumption allowances).

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