A firm spent 120 lakh on new machines and the net increase in capital stock was 45 lakh. What was depreciation?
Answer and explanation
Correct answer: 75 lakh
The spending on new machines is treated here as gross investment, while the net increase in capital stock is net investment. From Net investment = Gross investment − Depreciation, depreciation = 120 − 45 = 75 lakh. Therefore, 75 lakh of the investment replaced capital lost through wear, ageing, or obsolescence rather than adding to the capital stock.
Frequently asked questions
What is the correct answer to this question?
75 lakh
Why is this the correct answer?
The spending on new machines is treated here as gross investment, while the net increase in capital stock is net investment. From Net investment = Gross investment − Depreciation, depreciation = 120 − 45 = 75 lakh. Therefore, 75 lakh of the investment replaced capital lost through wear, ageing, or obsolescence rather than adding to the capital stock.
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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