Why is net investment considered the real increase in capital stock?
Answer and explanation
Correct answer: Because it shows the addition after deducting depreciation
Gross investment may include spending that merely replaces machines and equipment worn out during production. Deducting depreciation removes this replacement requirement and leaves the genuine addition to the capital stock: Net Investment = Gross Investment − Depreciation. Net investment may be positive, zero or negative. It is not household consumption, tax payment and certainly is not always zero.
Frequently asked questions
What is the correct answer to this question?
Because it shows the addition after deducting depreciation
Why is this the correct answer?
Gross investment may include spending that merely replaces machines and equipment worn out during production. Deducting depreciation removes this replacement requirement and leaves the genuine addition to the capital stock: Net Investment = Gross Investment − Depreciation. Net investment may be positive, zero or negative. It is not household consumption, tax payment and certainly is not always zero.
Which subject and chapter does this question cover?
This is a Class 11 Accountancy question. Chapter: Depreciation, Provisions, and Reserves.
