A factory purchases machinery worth ₹50 lakh. At the end of the year, depreciation is ₹5 lakh. What is the Net Investment made by the firm?

Correct option is A

The correct answer is (a) ₹45 lakh.
• Net Investment = Gross Investment – Depreciation.
• Here, Gross Investment = ₹50 lakh; Depreciation = ₹5 lakh.
=> Net Investment = ₹50 – ₹5 = ₹45 lakh.
Information Booster:
• Gross Investment = Total expenditure on new capital goods.
• Depreciation = Reduction in value of assets due to wear and tear.
• Net Investment indicates the actual increase in capital stock.
• Positive Net Investment → expansion of production capacity.
• If depreciation equals investment, there’s no net capital formation.
Additional Knowledge:
• Investment is a key component of Gross Domestic Product (GDP) under expenditure method.
• Types of investment: Planned vs. Unplanned, Gross vs. Net.
• High depreciation lowers a firm’s book value but offers tax benefits.
• In national income accounting, Net Domestic Product (NDP) = GDP – Depreciation.