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

188 VALUATION, DEPRECIATION AND THE RATE-BASE The Obligation to Replace. — In further substantiation of the advantage which results from use of a rate-base computed from the investment without any deduction of depreciation, attention may be called to the obligation to replace worn-out or discarded essential parts of every public utility plant which goes with the ownership thereof. It does not matter, in the case of any in- dividualized article, such as a steamboat, whether a replacement fund is being set apart to be kept inviolate and is accumu- lating interest at a rate which will bring it to the value of the steamboat in its life or whether there is no such fund. The owner of the steamboat is burdened with the obligation to re- place and this obligation is as real and as binding as though it were represented by an accumulated fund. It is optional with him whether to set apart a fund if none exists and let its earn- ings go toward a new steamboat or to simply let the obligation stand and to provide funds for the new steamboat when the old one goes out of use. To the extent of this obligation, that is, to the amount which should be in a replacement fund, any cap- ital which he commands is available for no other use than the replacement when the time comes. The interest on this fund, real or imaginary, is available for this use only and as the fund, together with the remaining physical value of the steamboat, is equal to the amount originally invested in the steamboat, it is plain that there is no need of annually drawing the dividing line between the remaining physical value and the amount which should be in the replacement fund (the so-called accrued depreciation). The remaining physical value plus the obliga- tion to replace is the invested capital on which the interest is to be computed whenever earned depreciation or replacement allowances are not regarded as amortizing capital. Period and Rate of Amortization. — When a municipality con- structs improvements under a bond issue or otherwise, suitable provision is made for the replacement of any of the worn-out parts of these improvements at the time that these parts go out of use. This is in strict conformity with the procedure under the Unlimited Life Method. But in the case of the municipal-

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