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Explain in brief the meaning of depreciation. |
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Answer» Decline in the value of capital assets is called depreciation. Due to depreciation, productive efficiency of machines, buildings, dam canals and equipment for generation of electricity declines. This is due to use of capital goods in the process of production. In this way, depreciation is one reason for decrease in value of capital asset. Therefore, to calculate net investment, we deduct the value of depreciation from gross investment. Depreciation = Gross investment – Net investment. |
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