DIVERGENT VIEWS ON DEPRECIATION 1 JAMES CAMPBELL ON DEPRECIATION Under the heading of "General" in the annual report of the North American Company for the fiscal year ended Dec. 31, 1913, James Campbell, formerly president of the Company and now chairman of the Board, says in discussing the question of depreciation: "The fact that the subsidiary companies in which your company is interested appropriate large reserves each year for the present maintenance and future preservation of their physical properties should not be without its influence on the value of your equities. Many other public utilities are at present operated under the assumption that a provision for ordinary maintenance is sufficient to arrest depreciation. Examination, however, of the causes leading to the abandonment of various items of physical property shows that in the majority of instances the replacement becomes necessary before the item has been worn out. Maintenance will do little other than permit the realization of the expected life, whereas depreciation is designed to insure the replacement which will increase the useful life of the property. "The determination of the proper allowances for maintenance and depreciation of properties is not without its difficulties. In fact, it calls for the exercise of conservative judgment and possibly modification from time to time as the necessity therefor develops. The estimates made by regulating commissions in cases involving the regulation of rates are at best crude guesses, and are rarely substantiated by accurate statistical information. That the principle of providing for depreciation is sound appears evident when it is recognized that it is necessary to provide to-day replacements to be made in later years in order that to-day's users of service may bear the cost thereof." During the year the companies controlled by the North American Company expended $10,528,891, which was charged to capital account, and provided out of earnings reserves for depreciation aggregating $3,401,029, and in addition thereto expended $3,116,082 on maintenance. The proportion of gross revenues expended on maintenance and appropriated for depreciation during the year 1913 by the rail, 1 Reprinted from the Electric Railway Journal. ways controlled by the company are shown by the following tabula H. M. BYLLESBY ON DEPRECIATION In the recent annual report of the Northern States Power Company, H. M. Byllesby, president of the Company, gives the following interesting discussion concerning the manner of appropriating amount out of the earnings of public utilities for depreciation: "All of the properties of the Company have been fully maintained to 100 per cent efficiency. The cost of this maintenance has been charged to operation. Beyond this no arbitrary charge has been made out of current earnings to represent any accruing depreciation which has not become evident, except in certain particular instances amounting to the sum of $67,861. The question of an allowance for accruing depreciation beyond the full maintenance of the property is one which is under discussion at the present time and upon which the most divergent views are expressed by operating officials. On the one hand, it is contended that beyond maintenance to 100 per cent efficiency no further arbitrary depreciation should be charged. On the other hand, it is contended that in addition to the full maintenance a certain definite allowance for accruing depreciation should be made. The amounts so to be allowed, whether based on percentages of gross income or percentages of depreciable value of the property, vary from the smallest amounts to amounts which are far beyond the possibilities of any property to sustain with present rates. "In the meantime, no distribution has been made on the common stock of the Northern States Power Company since its formation. The earnings which have accrued on the operating statements as applicable to that purpose have been reinvested in the plant and extensions to the service. This policy will be continued until such time as a more definite program as to depreciation has been generally adopted by public service companies similarly situated or until, by the establishment of public utility commissions in the states wherein the company operates, more definite rules on this subject are laid down for the guidance of the officers. Then the officers will put into effect in this property a working plan for the definite providing of accrued depreciation beyond the full maintenance which the properties always have. "Certain of the real estate holdings of the company have increased pronouncedly from the general appreciation in values in their vicinity. These appreciations in value should be taken into account in any consideration of the more or less academic question of accruing depreciation where properties have been fully maintained." STATEMENT FORM FOR CORPORATIONS1 LIABILITIES To KNICKERBOCKER NATIONAL BANK, NEW YORK. For the purpose of procuring credit from time to time with you for our negotiable paper or otherwise, we furnish the following as a true and accurate statement of our financial condition on.. 190..... which you are to consider as continuing to be full and accurate until we give you written notice of change. Notes Receivable (not transferred).. Merchandise, finished (how valued. (how valued. (how valued. Notes and Accounts Receivable of officers (not transferred) Total.. machinery $. 190. Total Insurance. to. 190. for the same period. for the same period. for the same period. Other Income, including investments for the same period. for the same period. CONTINGENT LIABILITY: Notes Receivable of customers Discounted or Sold and not included in assets enumerated above. 190. or from. DATE of ORGANIZATION of CORPORATION minimum TIME OF YEAR when NOTES and ACCOUNTS RECEIVABLE of CUSTOMERS, Uncollected, are generally maximum. VERIFICATION: have the books been audited by a Certified Public Accountant?. BUSINESS: what kind of business do you conduct?. BOOKS: what kind of books do you keep?.. if so, Date. minimum minin if so, Name and Date of Audit. |