Skip Navigation

IMA Journal of Management Mathematics 1999 10(1):1-14; doi:10.1093/imaman/10.1.1
© 1999 by Institute of Mathematics and its Applications
This Article
Right arrow Full Text (PDF)
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by LANE, J. A
Right arrow Articles by WILLETT, R. J.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

Optimal smoothing of accounting earnings

JOHN A LANE and ROGER J. WILLETT

Department of Mathematics, University of Wales Aberystwyth SY23 3BZ, U.K.
School of Accountancy, Queensland University of Technology Brisbane, Australia

Accountants seeking to estimate the profitability of a firm via the calculation of earnings utilize information about the number and current lifespan of unfinished activities by incorporating a smoothing device—depreciation—into their calculations. This paper considers a firm in steady state, carrying out a large number of similar activities with random starts and completion dates. By developing a stochastic model for the firm's activities, a difference equation for the minimum-variance smoothing function is obtained. This can be solved explicitly in the case of a periodic Poisson process of start times and independent exponential durations and is a variant of declining-balance depreciation.

Keywords: Stochastic model; accountancy; periodic Poisson process; optimal smoothing; depreciation; declining balance


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.