Discuss briefly the three components of 'operating surplus'. Defend or refute the following statement, with valid argument : "Depreciation is fall in the value of an asset due to unexpected obsolescence".

Question

Accepted Answer

Three components of Operating Surplus:

1. Rent: Income earned from property ownership. It includes rental income from buildings, land, and other assets.

2. Interest: Income earned from lending capital. It includes interest on loans, deposits, and other financial instruments.

3. Profit: Income earned by entrepreneurs. It includes dividends, retained earnings, and corporate tax.

Refute: Depreciation is NOT fall in value due to unexpected obsolescence.

Reason:
- Depreciation is the fall in value due to normal wear and tear, passage of time, and expected obsolescence
- It is planned and accounted for in business accounts
- Unexpected obsolescence is not depreciation but a capital loss