Correct Option: B

Capital formation is frequently thought of as a measure of total “investment”, in the sense of that portion of capital actually used for investment purposes and not held as savings or consumed. But in fact, in national accounts, the concept of gross capital formation refers only to the accounting value of the “additions of non-financial produced assets to the capital stock less the disposals of these assets”. “Investment” is a broader concept that includes investment in all kinds of capital assets, whether physical property or financial assets. The net valuation method views “depreciation” as the compensation for the cost of replacing fixed equipment used up or worn out, which must be deducted from the total investment volume to obtain a measure of the “real” value of investments; the depreciation write-off compensates and cancels out the loss in capital value of assets used due to wear & tear, obsolescence, etc.