ELEMENTS WHICH REDUCE VALUE 89 
and the money in the fund at the end of the period is available 
either for distribution to the stockholders, being a return of 
the money advanced by them or it is available for reinvestment 
in a new plant to replace the original one. Should a sale be made 
at any time while the plant is in service, with due allowance for 
its depreciation (offset by the amortization fund) and, this value 
being recognized by a purchaser and the price paid, there would 
again be 100 per cent available for distribution to the stock- 
holders, the deficiency of the selling price being made up by 
the accumulation in the amortization fund. 
In the case of net earnings amounting to less than interest on 
the invested capital plus current depreciation, the valuation 
of the plant by a purchaser would be at all times less than the 
value determined by deducting accrued depreciation from cost. 
In the case of earnings amounting to a proper interest return 
on the investment plus an adequate allowance for amortization 
or for replacement the valuation would be, as already explained, 
capital invested (or the replacement cost) less depreciation. 
The Use of an Amortization Fund. — Theoretically, then, a 
part of the earnings each year may be placed in an amortiza- 
tion fund as a repayment of capital invested, and this fund may 
be used for the replacement of the parts of the plant as they go 
out of service or of the entire plant when it has reached the end 
of its life. 
The accumulation of an amortization fund for such use, how- 
ever, while theoretically sound policy, is a measure not always 
adopted in actual practice, particularly when the properties 
owned are of a complex character — when they are made up of 
numerous parts of various periods of probable usefulness. Muni- 
cipalities, State and National Governments, do not set apart 
funds for the replacement of worn-out or antiquated buildings, 
parts of water-works, street pavements, sewers, and the like, 
until the replacement is necessary. They do not maintain funds 
at interest representing accrued depreciation out of which to 
reconstruct their public works. The sinking fund required to 
retire bonds which may have been issued to construct these