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 IX. Possible procedures when the rates for a public service are to be fixed

Collection:: Economics Books

1604 VALUATION, DEPRECIATION AND THE RATE-BASE other way; the probability that there were losses in the early years should not be overlooked. The various methods of procedure have had their origin in the various plans that have been adopted for making provision for amortization of capital and the replacement or renewal of discarded articles. When the distinction between amortization and the replacement requirements is disregarded, such methods of procedure as the Straight Line Method and Equal Annual Payment Method are the result. When amortization is treated as a matter apart, such methods as the Sinking Fund Method and the Unlimited Life Method are the natural outcome. The Sinking Fund Method. — The ¢ Sinking Fund Method ” of making appraisals and of determining necessary earnings is a method under which the annual allowance for replacements is uniform in amount. This replacement allowance (frequently referred to as depreciation) is the annuity which, together with compound interest at the rate of the net earnings of the prop- erty, will during the probable life of an article amount to its replacement cost. The replacement, it is assumed, is to be accomplished at the end of the probable life of that article. There is no repayment of capital. The investment remains undimin- ished. This is, therefore, a 100 per cent valuation method.* The amount which goes into the replacement fund does not retire capital. It generally remains in the business and may be assumed to earn the same amount as any other capital used in the business. Nevertheless, it is held by some authorities that this fund should be treated as though invested in absolutely safe securities and that, therefore, the interest rate introduced into the calculation should be about 4 per cent. But whether the fund be invested in outside securities or in the business, it is a fund which should be separately accounted for. Its earnings are earnings of the business and make the amount which must be collected from the rate-payer correspondingly less. When the fund remains in the business, it should be charged with the regular interest rate of return and this amount of the earnings * Trans. Am. Soc. C. E., Vol. LXXV, p. 828.

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