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

00 VALUATION, DEPRECIATION AND THE RATE-BASE works originally must not be confounded with a replacement fund. The one may be necessary to pay for the works in the first instance, the other to maintain them for all time. T he annual contribution to the sinking fund is a partial payment for the original work. The contribution to a replacement fund, in the case of a plant which is to serve without time limit, is for the purpose of perpetuating the work, because in that case the replacement fund, as far as it will go or as far as it is required, will be used for making replacements. The Wisconsin R. R. Commission in the case of the Superior Commercial Club vs. Duluth Street Railway Co. (Wis. R. C. R., Vol. 11, pp. I to 21) elsewhere quoted makes clear the distinction between depreciation and amortization. Referring to depreciation the Commission in the matter of the Fennimore Mutual Water & Light Plant, in 1913 (Wis. R. C. R., Vol. 12, p. 209), warns against the confusion of the depreciation fund with the depreciation reserve. The “fund ” is actually created by setting a part of the income aside. The “reserve ” is merely a book account which designates the amount and character of various transactions bearing upon depreciation and replacement expenditures. Though it may be difficult to make satisfactory forecasts with reference to necessary reinvestments to replace discarded parts of a plant, the requirements for amortization, being based on cost, are usually readily determinable with some degree of precision. Application to Complex Plants. — Thus far, the plant is as- sumed to have been constructed and put into use all at once, and is of such a character that all its parts have the same life. The same principles will apply when a plant is made up of many elements or parts having various periods of usefulness. The amortization or the replacement annuity is, in such case, de- termined for each part and from the sum of the annuities thus ascertained the minimum earnings which will prevent loss are determined. Mathematical Determination of the Replacement Fund. — The following problem presents itself: In the case of a plant

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