imported>Doug Williamson |
imported>Doug Williamson |
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| 1. ''Financial reporting - accounting practices.''
| | Geometric mean returns are calculated by taking account of compounding. |
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| Accounting depreciation spreads the cost of a long-term tangible asset over its total life.
| | (Contrasted with the arithmetic mean, which ignores compounding). |
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| The depreciation accounting charge reflects:
| | For example, the geometric mean return calculated from sample returns of 4%, 5% and 6% is given by: |
| * the estimated periodic cost to a business
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| * of a physical capital asset
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| * spread over its estimated useful economic life.
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| | (1.04 x 1.05 x 1.06)<sup>(1/3)</sup> -1 |
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| Accounting depreciation seeks to ensure that the total accounting cost of a capitalised asset is appropriately spread and matched to the economic benefits of using the asset.
| | = 4.9968%. |
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| Accounting depreciation is applying the accruals accounting principle to spread the total cost of tangible long term assets over their expected useful life.
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| Methods of spreading the total accounting cost include Straight line, Reducing balance and Sum of the digits.
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| Financial reporting standards generally permit the use of any systematic basis of allocating the total cost over the useful life of the asset.
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| It's important to be clear about the distinction between the:
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| *Depreciation charge for the period, reflected in the income statement; and
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| *Cumulative depreciation provision at the end of the period, reflected in the balance sheet.
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| The depreciation charge is an in-period accounting expense, charged against profits for the period.
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| The cumulative provision for depreciation is a liability in the balance sheet. It's offset against the cost of the assets, to calculate their accounting net book value.
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| Some accounting jurisdictions use the term ''amortisation'' both for this aspect of accounting both for tangible and intangible assets.
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| 2. ''Foreign exchange''.
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| A decrease in the value of a currency.
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| 3. ''Other contexts.''
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| More generally, any decrease in the value of an asset resulting from the passing of time.
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| == See also == | | == See also == |
| * [[Accruals accounting]] | | * [[Arithmetic mean]] |
| * [[Accumulated depreciation]]
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| * [[Amortisation]]
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| * [[Appreciation]]
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| * [[Assets]]
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| * [[Capital allowances]]
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| * [[Capitalisation]]
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| * [[Carry trade]]
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| *[[Cash flow]]
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| * [[CertICM]]
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| * [[Cost]]
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| * [[EBITDA]]
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| * [[Impairment]]
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| * [[Intangible assets]]
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| * [[International Fisher Effect]]
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| * [[Net book value]]
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| * [[Property, plant and equipment]]
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| * [[Provision]]
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| * [[Reducing balance]]
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| * [[Straight line]]
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| * [[Sum of the digits]]
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| * [[Tangible asset]]
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| * [[Tax depreciation]]
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| * [[Writing down allowance]]
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| [[Category:Accounting,_tax_and_regulation]]
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| [[Category:Corporate_finance]]
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Geometric mean returns are calculated by taking account of compounding.
(Contrasted with the arithmetic mean, which ignores compounding).
For example, the geometric mean return calculated from sample returns of 4%, 5% and 6% is given by:
(1.04 x 1.05 x 1.06)(1/3) -1
= 4.9968%.
See also
