ECONOMIC DEPRECIATION IN A CAPITAL GOODS INDUSTRY

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Abstract
This study has attempted to identify the economic depreciation of machinery and equipment used in the machine tool industry. The results suggest that the average total lives for machinery and equipment is in excess of 25 years. However, when actual retirement lives were examined, the average asset life in the hands of a user was approximately half of the average total life of the assets used by the industry. It is clear that no single asset life or even a single average asset life can be estimated with precision. It all depends on the application to which the asset is assigned, the care and maintenance given to it, the intensity of its use, and the opportunity to replace it with a new or improved asset. However, it appears that, on balance, the average life of fixed assets other than plant used by the machine-tool industry is very near to the mid point of the Asset Depreciation Range allowed by IRS.

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