34 VALUATION, DEPRECIATION AND THE RATE-BASE 
considered apart from a complex property. Treated by itself 
the automobile shows a marked drop in value as soon as it goes 
into service and thereafter may be considered as decreasing at a 
fairly uniform rate per year.) 
8. Whenever the rates to be charged for the service rendered 
by a public utility are to be fixed the current depreciation or the 
current replacement requirement must be estimated. This is 
usually done by compound interest annuity methods or by the 
so-called Straight Line Method. According to the procedure 
under which the necessary amount of earnings are determined, 
either the current depreciation or the current replacement re- 
quirement are then made a part of the necessary earnings. 
9. According to the procedure which is adopted for treat- 
ing the replacement requirement, depreciation and amortization 
in the accounting system, the computation of earnings that are 
necessary from year to year will vary. Any one of a number of 
methods of procedure may be adopted with due regard to the 
following: 
a. Is it desirable to keep the required earnings in the early 
years relatively low? 
b. Is any portion of the invested capital to be amortized or 
is there to be any amortization of expenditures for unproduc- 
tive work? 
c. Has there been any amortization of capital in the past? 
d. What hasbeen the relation of earnings to operating expenses? 
e. What amount of prospective business is to be taken into 
account? 
10. An earned depreciation allowance may be regarded as an 
amortization increment. The depreciation allowance is then for 
all practical purposes a repayment to the owner of a part of his 
invested capital. It will, in that event, make no difference in 
the ultimate result, at what rate the repayment of capital is 
made. Ordinarily capital is retired as follows: 
a. In equal annual amounts which without interest will in 
the life of the article whose cost is to be amortized amount to 
that cost. (The Straight Line Method.)