gross investment and net investment difference
Answers
The basic difference between gross investment and net investment is the consideration of depreciation. In gross investment, the expenditure calculated doesn’t consider depreciation. On the other hand, in net investment, there is a consideration of depreciation while calculating the expenditure.
Meaning of Gross Investment
It refers to the expenditure on the purchase of fixed assets and inventory during a financial year. In other words, gross investment is the sum total of expenditure incurred on fixed assets and inventory during a year. Hence,
Gross Investment = Expenditure during the year on (Fixed assets + Inventory stock)
Meaning of Net Investment
The concept of Net investment refers to the purchases of new assets only during the year. In other words, net investment indicates the increase in the stock of capital during a financial year.
Net investment = Gross investment – Depreciation (expenditure on replacement of worn-out fixed assets)
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Explanation:
Gross Investment is referred to as the total expenditure that is made for buying capital goods over a time period, without accounting for depreciation. ... Net Investment, on other hand, is the actual addition that is made to capital stock in a given period.