A factory machine is suddenly destroyed in a natural disaster. Why is it not included in normal depreciation?
Answer and explanation
Correct answer: It is not normal and expected capital consumption
Normal depreciation represents the predictable consumption of fixed capital through ordinary wear, regular use, and expected obsolescence during production. A machine destroyed suddenly by an earthquake, flood, or other disaster is an unexpected capital loss rather than normal capital consumption. It may reduce the wealth of the owner, but it is not treated as ordinary depreciation in national-income accounting.
Frequently asked questions
What is the correct answer to this question?
It is not normal and expected capital consumption
Why is this the correct answer?
Normal depreciation represents the predictable consumption of fixed capital through ordinary wear, regular use, and expected obsolescence during production. A machine destroyed suddenly by an earthquake, flood, or other disaster is an unexpected capital loss rather than normal capital consumption. It may reduce the wealth of the owner, but it is not treated as ordinary depreciation in national-income accounting.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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