Research Reports from the Department of Operations
Document Type
Report
Publication Date
9-1-1972
Abstract
This study begins by developing axiomatically (in Chapter I) the opportunity value method of depreciation within a larger theory addressed simultaneously to valuing assets and to determining income for profit-seeking organizations. Though rather general in scope, there are a number of applications whose idiosyncrasies preclude the use of this method; the reader is forewarned of these in Chapter II. Chapter III then begins the investigation of the properties of this method by reviewing the depreciation requirements of the performance appraisal process and showing that the measurements produced by this method are--from this standpoint--superior to those of several of its well-known rivals. The simplifying assumptions involved in Chapter III are successively relaxed in the next three chapters which show that opportunity value depreciation measures are not adversely affected by inter-temporal shifts in the cost of capital, by the operation of assets within inter-related complexes nor even by variability in the level of prices. The introduction of uncertainty is found actually to enhance the practical usefulness of the goodwill measures which are a necessary accompaniment to opportunity value depreciation. Chapter VII then addresses the needs of decision-makers, deriving a procedure whereby they can forecast the effects of changes in the rates of fixed asset utilization on their values and depreciation charges. Chapter VIII sketches the possibility of extending opportunity value methods to non-fixed asset accounts, indicating fruitful avenues for further research. Chapter IX concludes the study by appraising the suitability of this method to the needs of public accounting, in the process suggesting the appropriateness of a cost-benefit approach to the determination of general accounting principles.
Keywords
Operations research, Depreciation, Business enterprises--Valuation, Income accounting, Decision making, Cost effectiveness, Capital
Publication Title
Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 277
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Kennedy, Miles Hartley, "Opportunity, Value Theory and the Measurement of Depreciation, Income, Goodwill and Worth" (1972). Research Reports from the Department of Operations. 379.
https://commons.case.edu/wsom-ops-reports/379