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economic depreciation

Cchoy8y ago
May i ask what is the difference between the accounting depreciation and economic depreciation? Is that only economic depreciation need to be deducted from the operating profit in the EVA calculation?
kengarrettkengarrettTutor8y ago#1
Accounting deprecation is just a rather arbitrary rate - 15, 20 or 25% usually. Economic depreciation is the true reduction in the value of the asset, usually taken as the reduction in earning power of the asset (always supplied in an EVA question). Add back accounting depreciation and subtract economic depreciation.
Cchoy8y ago#2
will the asset need to deduct the economic depreciation before enter the capital employed?
kengarrettkengarrettTutor8y ago#3
In principle, yes. However the CE figure in EVA is the opening capital employed, so a depreciation adjustment for the period does not affect that.
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