A Valuation Experiment

Abstract

This chapter focuses on the practical aspect of the current versus historical cost issue, ignoring the theoretical justifications of each. The respondents were asked to supply information on the depreciation method, capitalized cost, salvage value, and years of life that was “best for book [as opposed to tax] purposes.” An end-of-year book value was calculated for each respondent from the depreciation method, cost, life, and salvage value that he chose. Moreover, the greater objectivity of historical costs should be accepted with two reservations. First, objectivity usually refers to agreement among qualified or competent observers. Daniel L. McDonald's findings indicated that on the basis of the minimum variance test proposed by Yuji Ijiri and Robert K. Jaedicke, current cost depreciation was at least as feasible as historical cost depreciation. Accountants profess to be competent to establish book values but deny any expertise m matters of market values.