If both gross investment and depreciation are given in an economy, what is the correct way to calculate net investment?
Answer and explanation
Correct answer: Subtract depreciation from gross investment
Net investment measures the change in capital stock after allowing for capital consumed during the period. Therefore, the correct formula is Net Investment = Gross Investment − Depreciation. Gross investment includes both replacement and additional investment. Adding or dividing the figures does not remove the value of capital used up, and option C refers to an already unknown quantity rather than a calculation method.
Frequently asked questions
What is the correct answer to this question?
Subtract depreciation from gross investment
Why is this the correct answer?
Net investment measures the change in capital stock after allowing for capital consumed during the period. Therefore, the correct formula is Net Investment = Gross Investment − Depreciation. Gross investment includes both replacement and additional investment. Adding or dividing the figures does not remove the value of capital used up, and option C refers to an already unknown quantity rather than a calculation method.
Which subject and chapter does this question cover?
This is a Class 11 Accountancy question. Chapter: Depreciation, Provisions, and Reserves.
