In which situation is only worn-out capital replaced, with no net increase in capital?
Answer and explanation
Correct answer: Gross investment equals depreciation
If gross investment equals depreciation, Net Investment = Gross Investment − Depreciation = 0. The investment made is just enough to replace the productive capital consumed during the period. Existing capacity is maintained, but no additional capital stock is created. Gross investment greater than depreciation would increase capital, while a smaller amount would cause a net decline.
Frequently asked questions
What is the correct answer to this question?
Gross investment equals depreciation
Why is this the correct answer?
If gross investment equals depreciation, Net Investment = Gross Investment − Depreciation = 0. The investment made is just enough to replace the productive capital consumed during the period. Existing capacity is maintained, but no additional capital stock is created. Gross investment greater than depreciation would increase capital, while a smaller amount would cause a net decline.
Which subject and chapter does this question cover?
This is a Class 11 Accountancy question. Chapter: Depreciation, Provisions, and Reserves.
