Budget Issues:

The Role of Depreciation in Budgeting for Certain Federal Investments

AIMD-95-34: Published: Feb 1, 1995. Publicly Released: Feb 1, 1995.

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GAO reviewed whether: (1) federal agencies are depreciating transportation infrastructure, research and development (R&D), and human capital investments for accounting and budgeting purposes; and (2) depreciation of these investments could be useful in federal budgeting.

GAO found that: (1) the federal government generally does not depreciate transportation infrastructure, R&D, and human capital investments for accounting or budgeting purposes; (2) Congress and the Administration are considering budgeting alternatives to decrease the annual federal deficit and increase long-term federal investments; (3) budget and accounting experts do not support depreciating these investments for budgeting purposes, since it is difficult to determine the value and useful life of such investments; (4) depreciation in accounting is complex and involves such key factors as the asset's value, its useful life, and its salvage value; (5) federal agencies do not depreciate assets they do not own because it is difficult to link federal grant money to the value of a specific asset; (6) although economists depreciate infrastructure and R&D investments to generate national economic wealth estimates, the problems of determining ownership or control of assets are not relevant in these analyses; and (7) private businesses use depreciation primarily to match revenues with expenses for a given period and for tax purposes.

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