An Evaluation of Ladelle's Theory of Depreciation

Abstract

Richard P. Brief has made a valuable contribution to the history of depreciation theory by drawing attention to Ladelle's remarkable paper of 1890.1 But he does less than justice to his discovery when he asserts that Ladelle saw the depreciation problem merely as one of cost allocation and not as one of asset valuation.2 Rather, the strength of Ladelle's position lies precisely in his recognition of the fact that an equitable allocation of intertemporal joint costs must rest upon a sound valuation of the bundle of residual services to, be transferred from one period to the next. There are two aspects of Ladelle's argument which need to be considered separately. First, there is his derivation of a general formula for the amount of depreciation chargeable against each year of an asset's life if expectations held at the time of purchase are fulfilled; second, there is his contention that non-fulfilment of expectations need have no effect upon the annual depreciation charges which were determined at the time of purchase of the asset. The former aspect will be discussed in Section I of this note, the latter in Section II.