Final answer:
The "modified approach" is applicable instead of depreciation for infrastructure assets. These public sector assets, like roads and water systems, must be maintained at a specified condition level to forgo depreciation. Investments in tangible assets like housing and collectibles offer varying rates of return, risks, and liquidity challenges.
Step-by-step explanation:
The "modified approach" can be elected in lieu of depreciation for certain types of assets known as infrastructure assets. These are usually large-scale, public sector assets that are networked across a broad area. Examples of such assets include road systems, water treatment facilities, and sewer systems. Under the modified approach, rather than depreciating these assets, the government ensures that the infrastructure is maintained at a certain condition level. If the government can demonstrate that the assets are being preserved at or above the established condition level, the need to depreciate the assets is eliminated. This approach focuses more on the maintenance of the assets rather than the yearly calculation of depreciation.
Investing in tangible assets such as housing, gold, or collectibles like baseball cards and fine art includes considerations of return rate, risk, and liquidity. Tangible assets often provide a moderate return rate, especially when considering nonfinancial benefits, such as living in a house. The risk may vary from moderate for housing to high for collectibles or gold, while liquidity is generally low, making it challenging to convert these assets into cash quickly. Moreover, while collectibles can offer personal enjoyment and might be sold for a profit in the future, they typically do not promise a higher-than-average return rate over an extended period.