Gross and Net Capital Formation
In economic statistics and accounts, capital formation can be valued gross, i.e., before deduction of consumption of fixed capital (or "depreciation"), or net, i.e., after deduction of "depreciation" write-offs.
- The gross valuation method views "depreciation" as a portion of the new income or wealth earned or created by the enterprise, and hence as part of the formation of new capital by the enterprise.
- The net valuation method views "depreciation" as the compensation for the cost of replacing fixed equipment used up or worn out, which must be deducted from the total investment volume to obtain a measure of the "real" value of investments; the depreciation write-off compensates and cancels out the loss in capital value of assets used due to wear & tear, obsolescence, etc.
Read more about this topic: Capital Formation
Famous quotes containing the words gross and, gross, net, capital and/or formation:
“I am haunted by interrupted acts,
introspective as a leper, enchanted
by a repulsive clew,
a gross and fugitive movement of the limbs.
Is this the love that shook the lights to flame?”
—Muriel Rukeyser (1913–1980)
“We perceive no charms that are not sharpened, puffed out, and inflated by artifice. Those which glide along naturally and simply easily escape a sight so gross as ours.”
—Michel de Montaigne (1533–1592)
“Mental events such as perceivings, rememberings, decisions, and actions resist capture in the net of physical theory.”
—Donald Davidson (b. 1917)
“Like cellulite creams or hair-loss tonics, capital punishment is one of those panaceas that isn’t. Only it costs a whole lot more.”
—Anna Quindlen (b. 1952)
“I want you to consider this distinction as you go forward in life. Being male is not enough; being a man is a right to be earned and an honor to be cherished. I cannot tell you how to earn that right or deserve that honor. . . but I can tell you that the formation of your manhood must be a conscious act governed by the highest vision of the man you want to be.”
—Kent Nerburn (20th century)