CHAPTER VI 
THE EFFECT OF NON-AGREEMENT OF ACTUAL WITH 
PROBABLE LIFE UPON THE DETERMINATION OF 
THE DEPRECIATION OR REPLACEMENT REQUIRE- 
MENT 
Depreciation Estimates are Approximations. — Consideration 
is now to be given to depreciation as a factor affecting the 
required earnings. It is not enough to know what the theo- 
retical depreciation will be if estimated from the probable life 
of any article. Any article in use may be considered as being 
gradually consumed in the service. When no longer useful, it 
must be replaced. The replacement requirement therefore must 
be estimated. To do this properly something more must be 
known besides the cost, probable life, and age. It will be nec- 
essary to take the condition of the article into account — to 
give consideration in other words to the question of whether 
it will outlast its probable term of usefulness or not. To dis- 
regard this fact results in crude approximation and loose meth- 
ods of accounting which are undesirable. 
Probable Life is Based on Experience. — The sum of all ex- 
perience, so far as the same has been made a matter of record, 
fixes the probable life of various classes of articles. Some arti- 
cles in every class will fail early, others will survive their prob- 
able life term. When any system of accounting is adopted 
under which the capital invested in individualized articles is 
to be retired during their probable life, some articles will fail 
before their cost is completely amortized and there will be 
others continuing to render efficient service after their cost has 
been completely amortized. The anomaly results of having to 
carry in the accounts a part of the cost of articles no longer in 
use but still in the process of amortization and also of having 
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