None! I'm an accountant! :bugeye:
Now this is very interesting because it brings up the point of what depreciation is and what it has to do with reality. Depreciation is decline in value of
"something" but what it is makes a difference and the financial loss doesn't necessarily tell us the effects.
If someone has $10,000 worth of diamonds in a safe deposit box and their value drops to $7,000, that's $3,000 in depreciation but there is no physical change in the diamonds.
If a man drives his car 30 miles to work every day this puts wear and tear on the machine reducing its value causing depreciation. But eventually this wear and tear will cause the car to fail. So suppose he makes $20 an hour. He leaves for work one morning expecting to be $160 richer when he comes home. His car breaks down on the way to work and he has to pay $40 for a tow and $260 for the repair and he failed to make his $160. So he's $460 below where he expected to be but an economist would say that GDP went up more than it would have if he had gotten to work because he spent more than he would have made. Who knows how much his car lost in depreciation that year?
After all of these decades of making cars and other machines don't you think manufacturers know how to test measure and specify the durability of automobiles? Do you see them competing on the basis of that data?
I have discussed these things with an economist at the University of Chicago and I have seen him on television a few times. If he is typical of economists they are technological morons. And talking about economics over the last 50 without looking at the real effects of technology is absurd.
I am typing this on a used computer I got off eBay for $200. It was made in 2002 and I've had it for a year. It was probably over $1000 new. The wear and tear on a computer is on the disk drive and a crashed drive can cost a lot depending on what was on it especially if it's not backed up. I expect an accountant knows that these days. But a BIGGer new hard drive can be gotten for $50 so a used computer with a new drive can be more useful than it was new. A new 3 GHz Dual-Core would be faster, but at doing what? I can't type any faster. I can't read the screen any faster. I should buy games that need more power just to have an excuse to buy a new computer? NOT ME! I know Macro$cam VISTA.
The point is you need to think about depreciation before you buy things in order to avoid it.
I have this Glencoe Accounting book.
http://www.amazon.com/Glencoe-Accounting-Real-World-Applications-Connections/dp/002815004X
Very interestingly on page 52, it talks about a Hispanic woman, Maria Sanchez, (this book is very PC with its multiculturalism) starting a messenger service and spending $3,000 on computer equipment. It just so happens that one of my clients in 1978 when I was a repair man for IBM was a messenger service. (They called us
Customer Engineers) That client had a System 32.
http://www.ibm-collectables.com/gallery/view_photo.php?set_albumName=vcf-east&id=mikeRoss_1
The man is sitting on it. :lol:
This was an 8-bit machine that took 32K of memory. This machine cost $20,000 and this was not a small messenger service, but that system 32 did what they needed done. In 1978 IBM introduced the 3033 mainframe. It cost $3,000,000. Needless to say it was more powerful than the System 32. On the basis of benchmarks I have run on lots of machines I would estimate that a 3033 was about equivalent to a
200 MHz Pentium. I have a used 300 MHz Panasonic Toughbook that beats it. So what would a new startup messenger service need with $3,000 of computer equipment in 2004, the date of the book. Of course Ms. Sanchez would need a printer and would do word processing that neither the System 32 nor the 3033 would have been used for. People still had typewriters in 1978.
Now this accounting book doesn't mention depreciation until page 624 but Ms. Sanchez wasted at least $1500 on page 52. Since her startup capital was only $25,000, that is a significant amount.
In my rarely humble opinion the amount of money wasted on depreciation cannot be ignored if we are trying to have a vaguely accurate understanding of how the economy really works. Fraggle Rocker is estimating a quarter of a trillion dollars lost in depreciation on cars each year.
http://64.15.154.169/showpost.php?p=1325261&postcount=5
Since machines inevitably wear out this cannot be eliminated but how much can it be reduced? It probably won't be reduced by pretending it isn't happening. Since I think the level of accounting knowledge that would be useful in a household or small business is pretty elementary I don't see why it shouldn't be required in schools. It would make for a better Omni-Capitalism. Everyone doesn't need to know how to cook the books for Enron. These days a PDA is more powerful than a System 32, competition for a 3033 actually.
psik
