When gross investment is greater than depreciation, what is the normal effect on capital stock?
Answer and explanation
Correct answer: Capital stock increases
When gross investment exceeds depreciation, Net Investment = Gross Investment − Depreciation is positive. A positive net investment means that additions to productive assets are greater than the capital consumed during the period. Consequently, the capital stock normally increases, assuming no other major adjustments. It does not become zero or fall, and capital stock remains a measurable economic concept.
Frequently asked questions
What is the correct answer to this question?
Capital stock increases
Why is this the correct answer?
When gross investment exceeds depreciation, Net Investment = Gross Investment − Depreciation is positive. A positive net investment means that additions to productive assets are greater than the capital consumed during the period. Consequently, the capital stock normally increases, assuming no other major adjustments. It does not become zero or fall, and capital stock remains a measurable economic concept.
Which subject and chapter does this question cover?
This is a Class 11 Accountancy question. Chapter: Depreciation, Provisions, and Reserves.
