Valuation, depreciation and the rate base

Bibliographic data

Monograph

Identifikator:: 174667931X

URN:: urn:nbn:de:zbw-retromon-119897

Document type:: Monograph

Author:: Grunsky, Carl Ewald http://d-nb.info/gnd/10180959X

Title:: Valuation, depreciation and the rate base

Edition:: 2. ed., revised and extended

Place of publication:: New York

Publisher:: Wiley

Year of publication:: 1927

Scope:: X, 500 Seiten

Digitisation:: 2021

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter V. Elements which reduce value

Collection:: Economics Books

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

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