Note compares layering technique with average age method for estimating depreciation, revealing the layering method's advantages.
ABSTRACT: Previous research has questioned the use of COMPUSTAT capital expenditures data to layer fixed assets for the purpose of estimating constant dollar depreciation. This note compares the layering technique with the more popular alternative, the average age method. Estimated amounts were compared with actual data reported under FASB #33. The results indicate that the layering method provides estimates that exhibit less error, bias, and variance.
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Daniel G. Short (1985) studied this question.
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