Forms and rates of economic and physical depreciation by type of assets in Canadian industries

Abstract

This paper introduces a method for performing large-scale studies of forms and rates of economic and physical depreciation by type of assets in Canadian industries. A fractional function representation for the form of economic depreciation is introduced where the numerator represents the form of economic depreciation without adjustment, and the denominator represents the form of either the gross or the net physical depreciation. This representation provides a clear picture of the relationship in both form and rate between economic and physical depreciation. The forms of economic and physical depreciation (except the gross physical depreciation) are all convex, while the exceptional one is concave.

This is one of the research papers studied at Statistics Canada in the evolving search for a better methodology for estimating depreciation patterns. Based on the findings of this paper, with more survey data available, and following a more conventional approach, a project is currently underway at Statistics Canada. Gross physical depreciation will be considered as one of the adjustment factors for the price-age-date profile.